FCA sets out guidance for mortgage providers & lenders on COVID-19-related loan scheme
The UK Financial Conduct Authority (FCA) has published new guidance for mortgage lenders and administrators, and small business lenders.
This supports the announcements made by the Chancellor last week. Interim chief executive, Christopher Woolard states that the FCA wishes to help firms support consumers during these unprecedented times.
“Our mortgage guidance underpins the actions taken by mortgage providers and will give confidence to both consumers and firms. In particular, we are making it clear that no responsible lender should be considering repossession as an appropriate measure at this time,” says Woolard.
This supports the announcements made by the Chancellor last week.
He adds: “Small businesses can be confident that their access to funds can be based on how their business has performed in the past and its future prospects – not its position today.”
Under its mortgages guidance, the regulator makes it clear that firms should grant customers a payment holiday for an initial period of three months, where they may experience payment difficulties as a result of coronavirus and where they have indicated they wish to receive one.
Firms should also ensure that there is no additional fee or charge (other than additional interest) as a result of the payment holiday.
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.
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The FCA has 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 notes that it will continue to review these measures as the situation develops and update the guidance appropriately.
As for small business lenders, the FCA has issued new guidance to firms participating in the Government’s Coronavirus Business Interruption Loan Scheme.
The Scheme, announced by the Chancellor on 17 March, supports lending to small and medium-sized enterprises (SMEs) impacted by coronavirus of up to £5 million. However, loans of up to £25,000 to sole traders and unincorporated enterprises can fall within the scope of FCA regulation.
The FCA has issued guidance on the information and circumstances that are relevant when assessing the affordability of such loans. The fact that the customer may, at the time of the application, be temporarily experiencing exceptional financial pressures does not mean that the firm is prevented from making the loan.
The guidance notes that lenders may take into account appropriate evidence, including historic trading figures as well as future forecasts.
If forecast income does not materialise, lenders should consider deferring repayments until it does.
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What is a payment holiday according to Barclays ”A payment holiday lets you take a three-month break from making your monthly Barclaycard payments.” However from the next paragrapgh’ Will I be charged interest’ we can see that this is not entirely true ”We’ll still charge interest (in line with existing rates) on your balance during the payment holiday. We’ll text you if interest added to your balance during the payment holiday takes you over your credit limit. You can then make a payment. Bear in mind that your credit rating could be affected if you’re unable to do so. ” We can see that this payment holiday is not for those who are really struggling, because the person who is really struggling most likely close to its credit limit and unable to make any payments. Not to mention that anything paid over the interest is available for client to spend anyway. Therefore, this holiday help, especially with report to credit agency, is more of the sham than help.