Insights and Analysis

FCA finalises extension to COVID-19 payment deferral scheme for mortgages and additional guidance

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The FCA has published final iterations of its COVID-19 guidance for firms dealing with mortgage customers experiencing financial difficulty. The amended guidance on payment deferrals (the Payment Deferral Guidance) came into effect on 20 November 2020 and will expire on 31 July 2021, save to the extent that there are any payment deferrals that come to an end after that date.

Customers are limited to six months of deferrals in total over the period of 20 March 2020 to 31 July 2021. However, after 31 March 2021 a deferral is only available if the payments it covers run consecutively with payments under a previous deferral.

Customers who have already had two deferrals will continue to fall under the “Tailored Support Guidance” (first published in September 2020 as “Additional Guidance” and updated to reflect the previous extension of the original payment deferral regime).

The FCA has published the final version of its amended Payment Deferral Guidance for firms dealing with mortgage customers experiencing financial difficulty, proposing to extend the availability of payment deferrals to support borrowers who are experiencing payment difficulties because of COVID-19.

The regime has been extended from 31 October 2020 to 31 July 2021 with some further amends and refinements – but broadly remains the same.

As before:

  • Customers currently relying on an initial 3 month payment deferral will be eligible for another payment deferral of up to 3 months.
  • Customers who have resumed repayments after an initial payment deferral will be eligible for another payment deferral of up to 3 months.
  • Firms can still choose to make alternative arrangements to a payment deferral where that is in the customer’s best interests (e.g. offering a shorter deferral, an extension, different product or a reduction in interest).

However, the FCA has made the deferral regime more flexible, confirming that payment deferrals do not need to be consecutive and can be taken other than in two tranches of 3 months’ worth of deferrals, subject to an overall limit of 6 months’ worth of deferrals. This means that customers who have already benefitted from a deferral of less than 6 months can ask for a further payment deferral until 31 March 2021.

Following 31 March 2021, a deferral is only available if the payments it covers run consecutively with payments under a previous deferral and firms are unable to offer a payment deferral in respect of any payments falling due after 31 July 2021.

The FCA has also clarified that:

  • customers experiencing, or who reasonably expect to experience, payment difficulties due to COVID-19 are eligible for a deferral even if they are in a payment shortfall or receiving alternative forbearance; and
  • payment deferrals under this guidance are available to customers who have already agreed to delay the capital repayment under the guidance in PS20/11 (Mortgages: Removing barriers to intra‑group switching and helping borrowers with maturing interest‑only and part‑and‑part mortgages) which has also been updated.

The FCA has also published the final version of its Tailored Support Guidance (previously “Additional Guidance”), which has not changed that much from the draft version.

As before, the additional guidance addresses treatment of customers continuing to experience financial difficulty after two payment deferrals or who need support after the deferral regime ends. However, the FCA has clarified that the Tailored Support Guidance is also relevant to:

  • customers that are eligible for a payment deferral under the Payment Deferral Guidance, but who have opted for other agreed forbearance measures; and
  • customers that can resume contractual payments at the end of a deferral, but do not capitalise or repay the deferred amount.

Repossessions

The ban on repossessions (outside of exceptional circumstances, which the FCA expects to be construed narrowly) will still end on 31 January 2021, despite the extension of the Payment Deferral Scheme.

The FCA has reminded firms that this applies to all mortgage customers, wherever a firm is considering a repossession.

As before, firms may commence or re-commence and continue possession proceedings prior to this date. The FCA has clarified that such proceedings can continue up to and including a possession order being obtained as long as they follow the guidance, MCOB 13 and pre-action protocols. However, firms are not allowed to take steps to enforce an order for possession prior to 31 January 2021.

Next steps

The Payment Deferral Guidance and Tailored Support Guidance came into effect on 20 November 2020. The FCA will continue to keep both under review as the COVID-19 situation develops.

If you would like to discuss any of the above, please contact us.

 

 

Authored  by Charles Elliott

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