COVID-19: Principle 6 & Mortgage Conduct of Business
In response to the exceptional circumstances caused by the Coronavirus threat and lock-down measures to reduce contagion of COVID-19 disease, the Financial Conduct Authority (FCA) recently published extra guidance for mortgage loan providers. Primarily, the updated advice aims to minimise the threat of repossession if owner-occupiers fall into mortgage payment arrears.
Unfortunately, following the limits on movement and restriction of business activity imposed from March, many employees and homeowners have seen their monthly income reduce. Specifically, the new guidance applies to borrowers who are experiencing difficulties paying their home loans, due to the lock-down, self-isolation and quarantine measures.
In line with FCA publication PRIN 2.1.1 Principle 6, firms must treat customers fairly and pay due regard to their interests. Among others, the principle applies to banks, building societies and other mortgage lenders when dealing with borrowers.
Additionally, MCOB (Mortgage Conduct Of Business) rules require firms to deal honestly and professionally, as well as in their clients’ best interests. In enforcing these requirements, the FCA expects every financial institution to follow the guidance published in the 2008 regulations. Significantly, the watchdog expects all providers to comply – including those not registered with the Financial Services and Markets Authority.
Significantly, the new guidance also covers information provision, waiving of fees, payment holidays and possession proceedings. For as long as the exceptional restrictions and threat of COVID-19 disease continue to cause upheaval and uncertainty, repossession actions are out of the question. Furthermore, social distancing and self-isolation mean that lenders are to refrain from enforcing orders. Notably, the FCA states that it intends to act as necessary and without hesitation against mortgage providers that initiate or continue repossession proceedings in contravention of Principle 6 and MCOB during the lock-down period – and, conceivably, beyond.
Under the revised guidance, the FCA places the onus on building societies, banks and other home loan companies to keep customers fully informed. Lenders must discuss the possible impact of repossession with them, along with the likely effects on any remaining equity if they stay in the property. In the current situation, repossessions can take place only if the customer and lender agree to it.
Notably, the recently issued additional mortgage guidance makes it clear that there are to be no additional fees or charges except interest. Payment pauses of three months ought to be available to customers who request them and, importantly, such requests should not have any negative impact on credit scores.
Coronavirus Business Interruption Loan Scheme
In further news published on its website, the interim chief executive of the FCI, Christopher Woolard, emphasised how the regulatory body wanted to help lenders support businesses during these atypical and extraordinary times. The exceptional times had required changes to guidance on lending criteria and payment vacations, to provide some certainty.
Mr Woolard made it clear that if small business borrowers were in financial difficulty due to the lockdown, they could access funds based on their past performance and prospects, rather than on the current position only.
In what might prove to be a lifeline for numerous SMEs (small and medium-sized enterprises), companies can now apply for support through the Business Interruption Loan Scheme, as announced by the Chancellor of the Exchequer. Unincorporated enterprises such as partnerships and sole traders will also have access to the initiative, for loans of up to £25,000. Under the plans, lenders have instructions to assess previous years’ trading figures, business plans and cash flow forecasts. Temporary cash flow pressures should not in themselves, therefore, prevent firms from receiving the loans they request.
On a final note, the FCA intended to review its published advice within three months and update it as appropriate.