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    FCA Consults to Ease Mortgage Rules to Help Borrowers Amid Pandemic

    July 28, 2020

    FCA published a statement on mortgage prisoners and a proposal, via the consultation paper CP20/13, to support certain consumers in the mortgage market. CP20/13 proposes further action to support certain mortgage prisoners with options and to protect interest-only and partial capital repayment customers whose mortgages recently matured or will mature during the next 12 months, given the impact of the pandemic. The consultation will close on September 08, 2020. If FCA proceeds with the proposed guidance on maturing interest-only and part-and-part mortgages this will come into effect on October 31, 2020.

    The FCA statement sets out the actions already taken to help mortgage prisoners and outlines further support for consumers who are struggling, including a new dedicated helpline created with the Money and Pensions Service. FCA recognizes the challenges faced by mortgage prisoners and the impact of the pandemic health crisis. FCA analysis found that, on average, borrowers with inactive firms who cannot switch and are up-to-date with payments are paying slightly more (0.4 percentage points) than similar borrowers in the active market, when taking account of their risk and loan characteristics. Therefore, FCA concludes that the prices they pay are broadly the same as borrowers with similar risk and loan characteristics in the active market. Nevertheless, FCA recognizes that many of these borrowers are unable to switch. FCA rule changes in October 2019 were designed to make it easier for borrowers who are up-to-date with payments, including mortgage prisoners to switch to new lenders. 

    In CP20/13, FCA is consulting on a rule change on intra-group switching to remove potential barriers in its rules to closed book customers switching to a new mortgage with a firm that sits within the same group as their current closed book lender. The proposed guidance would help borrowers who have a maturing interest-only or part-and-part mortgage and who are currently up-to-date with payments. These borrowers would have the option to delay repayment of the outstanding capital on their mortgage until October 31, 2021. In addition to this, FCA will continue its discussions with the government, consumer groups, and other stakeholders to explore other options for mortgage prisoners. This consultation affects mortgage lenders, mortgage administrators, including those acting on behalf of unregulated entities, closed-book mortgage customers, and mortgage customers with maturing interest-only or part-and-part mortgages. This consultation will also be relevant to stakeholders with an interest in the mortgage market, including credit reference agencies, trade bodies representing mortgage firms, consumers and consumer organizations, and charities and other organizations.


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    Comment Due Date: September 08, 2020

    Keywords: Europe, UK, Banking, Credit Risk, CP20/13, COVID-19, Mortgage Lending, Mortgage Prisoners, Payment Deferrals, FCA

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