Written on July 4, 2023 by
In his statement to announce Charter Mortgage, the advisor said the changes he announced would be available to borrowers “with no questions asked.” The Bank of England and Financial Services Act 2016 says the Treasury may at any time make recommendations to the FCA on economic policy, but by announcing a new policy without consultation, the advisor has overruled the recommendation! However, the FCA must reflect the advisor’s policy in its rules.
It has now published a policy statement (PS23/8) confirming its enabling provisions. While the ability to self-select a forbearance option would be a relief and welcome by some borrowers, many of them will be responsible and only use the options available when they really need to, as I said in my previous blog, I think it’s dangerous because with that being put Too much information in front of borrowers, a large proportion will either not fully understand the implications or will ignore them.
In practice, I suspect most borrowers who need to reduce their payments will need to do so for more than 6 months, and so before the end of the 6 months they will need to discuss with the lender about extending the forbearance period, as the FCA recognizes in point 2.28. However, however obvious that patience only lasts for 6 months, I suspect many borrowers will be lulled into a false sense of security, until contacted by the lender, that they can continue making lower payments without having a conversation with the lender. .
For the same reason, I would expect very few borrowers to go back to their original mortgage terms within 6 months. However, I’m very pleased that FCA highlights in 2.10 a free ERC overpayment option which could achieve the same effect as returning to the original terms but with the advantage of more flexibility and the ability to revert gradually if more appropriate. It also avoids incurring the modest administrative fee that many lenders typically charge for contract changes.
The COVID situation was very different because there was a sudden fear that many people would lose their jobs, but in hindsight, we know that many people took the 3-month “no questions asked” vacation as a safety net instead of actually needing it.
In the current situation, the problem is more related to education and lack of sufficient advance planning. Borrowers should know when the fixed interest rate ends and plan ahead for what they will do if the new higher payments are difficult or unaffordable; Many do but some don’t, although it’s clear that the speed of recent price increases has understandably caught the eye of some.
Another important point to make clear to borrowers is that there is no assurance in the FCA’s policy statement that, unlike the 3-month COVID-19 Mortgage Leave, anyone who chooses to exercise any of these forbearance options will not be adversely affected by their credit rating. .
In the absence of such assurance, borrowers must assume that exercising any of these forbearance options will have an adverse effect on future mortgage or other credit applications. So the FCA should stipulate that information provided by lenders should include a warning of potential negative effects on borrowers’ credit rating.
Finally, section 2.5 in the policy statement is interesting. “These rules are exceptions to the requirements for responsible lending,” she says. The only conclusion I can draw from this statement is that the FCA believes the current responsible lending requirements are too onerous, because the only alternative logical explanation is that these new exemptions are irresponsible!
category: Ray Bolger