Struggling Borrower Help Now Permanent FCA

The Financial Conduct Authority (FCA) is to make rules introduced temporarily for borrowers struggling to meet payments during the pandemic permanent.

During the covid-19 lockdown and aftermath, many borrowers on reduced incomes or furlough payments or those unable that did not qualify but were unable to work struggled to meet mortgage and loan payments.  At the time, the FCA set out rules where:

• Evictions were banned.
• Mortgage/Loan payment reductions and/or payment holidays.
• Tailored support and guidance offered to each borrower in difficulty.

Given subsequent house price increases and now interest rate increases with many coming to the end of their lower fixed rate deals and now facing huge mortgage and loan payment increases, the FCA has worked with over 100 lenders to now make support requirements permanent.  This follows on from the fact that the FCA has already secured £47m in compensation and redress for struggling borrowers that did not get the support that they were supposed to receive from 17 lenders.

New Rules and Guidance for Mortgage Lenders, Credit and Overdraft Providers

• Allow reduced payments.
• Allow temporary payment holidays.
• Extending the loan term to reduce payments.
• Tailor solutions to individual needs rather than ‘blanket’ support rules.
• Fair arrears fees that reflect reasonable costs incurred rather than expensive penalties designed to encourage people to not get into arrears.
• Signpost individuals to free and impartial money guidance and debt advice services.

Comment

This is a tough one.  Lenders usually will have borrowed capital at a given rate to then lend as credit or loans.  Lenders will still have their own debts to pay but may struggle if they are not receiving their full payments from borrowers.  That said, if lenders have not tested affordability and have created a risk of toxic debt, then the lessons of the 2008/09 Credit Crunch Crisis and the subsequent Mortgage Market Review (MMR) have not been learned in bringing in loan suitability requirements, affordability tests in normal times as well as the more important stress test on loan affordability if there are difficult times such as is the case now.