"While extending mortgage holidays may be welcomed by consumers in the short term, there is a real risk that it is storing up trouble for the future."
The FCA has said it will extend the period of the three-month mortgage payment holiday if necessary, in light of the ongoing coronavirus pandemic.
In new guidance to mortgage lenders and administrators relating to Covid-19, the regulator highlighted the "skill and care we consider may reasonably be expected of lenders in the mortgages market in the current exceptional circumstances of coronavirus".
The new guidance makes clear that firms should grant customers a payment holiday for an initial period of three months and ensure that there is no additional fee or charge (other than additional interest) as a result of the payment holiday.
The FCA said it will review this guidance in the next three months and will issue amended guidance extending the period of the payment holiday if appropriate.
The guidance also sets out the steps firms should take to ensure that the payment holiday does not have a negative impact on the customer’s credit score.
The FCA has also made it clear that in the current circumstances, it does not consider that repossession will be in the best interests of the customer. As a result, repossession should not be commenced or continued with unless the firm can demonstrate clearly that the customer has agreed it is in their best interest.
The regulator stressed that lenders should comply with professional diligence and noted the rules set out in Principle 6 (‘A firm must pay due regard to the interests of its customers and treat them fairly’) and MCOB 2.5A.1R (‘A firm must act honestly, fairly and professionally in accordance with the best interests of its customer’).
The FCA said this guidance is "potentially relevant to enforcement cases" and warned that if a lender does not follow this guidance, "that could call into question whether it is meeting the requirements of the 2008 Regulations, even if the lender is not regulated under FSMA".
Dave Miller, client account manager at Spicerhaart Corporate Sales, commented: “While extending mortgage holidays may be welcomed by consumers in the short term, there is a real risk that it is storing up trouble for the future.
“It will add to the interest burden once the holiday period is over and that will place some borrowers under real strain, especially those that were already struggling with arrears prior to the current crisis.
“We’ve all had that back-to-work feeling after a long holiday. For borrowers enjoying an extended mortgage holiday, this could be much worse than that.”