The Holiday is Over: Will the FCA’s efforts to support homeowners after the mortgage payment holiday be enough?

One of the impacts of the COVID-19 pandemic is that national income has fallen dramatically. In response to concerns from homeowners unable to meet their mortgage repayment requirements due to a drop in income, the Treasury and Financial Conduct Authority announced a ‘mortgage payment holiday’. This was the result of banks agreeing to allow mortgage-holders suffering from a drop in income to pause their repayments. A ban on home repossessions was put in place at the same time.

The scheme when initially announced was due to end in June 2020, but when it became clear that there had been little improvement by the late spring, it was extended to allow homeowners to apply for up to two payment holidays amounting to a total of six months.

The window for applications for a payment holiday was set to close on 31 October 2020.

The current position

Hot on the heels of the Government’s announcement on 31 October that the UK was to enter a further period of lockdown, the FCA published proposals it is making for extended support for people who will experience continued financial difficulty as a result. Their proposal is that the window for applications for a mortgage payment holiday will be extended to 31 January 2021. Before then:

• If you have not yet taken a payment holiday, you will be eligible for two payment holidays of up to six months in total;
• If you currently have an initial payment holiday, you will be eligible for another payment holiday of three months;
• If you have resumed repayments after an initial payment holiday, you will be eligible for another payment holiday of up to three months.

This amounts to re-starting the scheme afresh for those who have not yet had a payment holiday, and extending it for those who have – with the same limitations of a maximum of two holidays amounting to a total deferral time of six months. The home repossession ban has also been extended to 31 January 2021.

This will be welcome news for those who had yet to take advantage of the scheme, or who had only used one holiday but will now require another. But what is the position for those who have already used their full entitlement?

The FCA carried out a survey in July which indicated that 12 million adults in the UK have ‘low financial resilience.’ This means that they might struggle with managing their personal finances, including paying their bills or staying on top of loan repayments. 2 million of these have only become not financially resilient since February 2020.

In light of this, it is likely that those who have already used up their mortgage payment holidays now find themselves in as much financial difficulty as before, but without the comfort of the protection given by the scheme. It is worth noting that whilst mortgage repayments have been suspended for those who deferred payments, interest on their mortgage for some has continued to accrue, which means the possibility of them facing even higher monthly payments once the deferral comes to an end.

The FCA’s Interim Director of Strategy and Competition, Sheldon Mills, has said: ‘We want to remind consumers, especially those who are newly in financial difficulty, that lenders are able to provide you with support. There are options available to you which will reflect the uncertainties and challenges that many customers will face in the coming months. It is also important that households in serious financial difficulty seek debt advice for support.’

The FCA’s guidance for consumers on coming to the end of a payment holiday advises speaking to lenders to find out about what support is available, which might include further pauses to mortgage payments in the short term, or extension of repayment terms or restructuring of a mortgage in the longer-term.

The ‘Mortgages and Coronavirus: Additional Guidance for Firms’ directed at lenders says that the FCA ‘want firms to deliver the following outcomes:

• Customers receive appropriate forbearance that is in their interests after consideration of their individual circumstances.
• Firms support their customers through a period of payment difficulties and uncertainty, including by considering their other debts and essential living costs.
• Firms recognise vulnerability and respond to the particular needs of vulnerable customers.
• Firms have systems, processes and adequately trained staff, with any staff incentives aligned with providing their customers with the help they need.
• Customers should receive the support they need in managing their finances, including through self-help and money guidance. Firms should signpost or refer them to debt advice if this meets their needs and circumstances.'

The non-prescriptive nature of these expectations might at first glance suggest a relaxing of the FCA’s requirements for lenders to put the needs of the customer first. However, the guidance itself explains that it is built on the following requirements for firms:

• Principle 6: A firm must pay due regard to the interests of its customers and treat them fairly;
• Principle 7: A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading;
• MCOB (Mortgages and Home Finance: Conduct of Business sourcebook) 2.5A.1R: A firm must act honestly, fairly and professionally in accordance with the best interests of its customer; and
• MCOB 13: Arrears, payment shortfalls and repossessions.

It also makes clear that the guidance is ‘potentially relevant’ to FCA enforcement cases and may be taken into account when assessing whether a firm could or should have known that their conduct in relation to these matters fell below the required standards as outlined above. This is a strong indicator that, although the FCA is taking a step back with regard to the precise nature of the support firms should be giving customers, this is by no means a lowering of expectations as to the level of care which should be extended to those who are struggling financially.

The market knows from previous experience that the FCA takes seriously the needs of customers, even when they are failing to meet their financial obligations. In June 2020 they fined Lloyds Bank plc, Banks of Scotland plc and The Mortgage Business plc a total of £64,046,800 for breaches of Principle 3 (A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems) and Principle 6 (as above). The banks also implemented a customer redress scheme which resulted in customers receiving redress payments totalling an estimated £300 million.

When announcing the fine, the FCA clarified that, 'Customers should still pay what is owed, but banks are obliged to treat their customers fairly when making new payment arrangements…Firms should take notice of the action we have taken today to ensure that their own treatment of customers meets our expectations.' The fine was in relation to actions the banks took, and failed to take, between April 2011 and December 2015, when customers were not experiencing especially acute financial difficulties as the result of a pandemic. The FCA has made clear that although it recognises the challenges faced by firms in the current climate, the circumstances mean it considers the fair and appropriate treatment of customers to be even more important than in usual times.

Given that financial institutions have already experienced significant pressure and operational difficulties due to the new ways of working in the pandemic, there may be a danger of them being overwhelmed as customers seek urgent advice and assistance as their payment holidays come to an end. It remains to be seen whether firms are able to manage the demand so as to give sufficient regard to the interests of their customers going forward, or whether the pressures created by the expiry of these holidays leads to shortcomings which may be subject to enforcement action by the regulator in due course.

Further information

For further information on the issues raised in this news post, please contact a member of our criminal litigation team.

About the author

Anna Holmes is an Associate in our Criminal Litigation team. She is an experienced criminal law practitioner who has represented clients in respect of a wide range of offences and has extensive experience in dealing with vulnerable clients.