Borrowers who face financial hardship as their mortgage holiday ends must receive tailored support including the option to continue deferring payments, according to the Financial Conduct Authority (FCA).

Three-month mortgage breaks were introduced in March and taken up by millions of borrowers as the coronavirus pandemic unfolded.

A further three-month extension was added in May, with homeowners able to take advantage of a first or second deferral until the end of October.

The majority of customers who took a payment holiday are expected to resume payments, but many will remain in difficulties, according to the regulator.

What happens next?

The FCA’s guidance proposes that customers should be offered a range of different short and long-term options appropriate to their specific circumstances.

Where further short-term support is needed, firms should offer arrangements for no or reduced payments for a specified period to give customers time to get back on track, the regulator added.

In cases where borrowers require further support from lenders this would be reflected on credit files, under the proposed guidance.

The regulator said this will help to ensure that lenders have an accurate picture of consumers’ financial circumstances and reduce the risk of unaffordable lending.

However, firms were told they should be clear about the credit file implications of any forms of support offered to borrowers.

Other options of help could include extending the repayment term or restructuring of the mortgage, the regulator said.

Vulnerable borrowers

Under the guidance, lenders should prioritise giving tailored support to borrowers who are at most risk of harm, or who face the greatest financial difficulties.

Borrowers should also be provided with the support they need in managing their finances, including through self-help and money guidance, with referrals to debt advice if appropriate.

Christopher Woolard, interim chief executive of the FCA, said: “It is important that consumers who can afford to resume mortgage payments should do so.

“However, we understand that borrowers facing payment difficulties because of the pandemic will continue to face uncertainty and may also experience temporary interruptions in income.

“We are proposing that firms contact their borrowers in good time before the end of a payment holiday, and work with them to come up with a tailored plan to help get them back on track. Firms should not take a ‘one size fits all’ approach.”