Financial honeymoon period coming to an end?
Financial honeymoon period coming to an end?
The UK’s financial regulator, the Financial Conduct Authority (FCA), has sent its clearest message yet, that the financial honeymoon period that has characterised much of the start of the COVID-19 Crisis, is now coming to an end.
The honeymoon period, which has seen millions of UK consumers protected from the worst effects of the crisis will continue, but only until the end of October and is likely to be scaled back over the coming months.
Payment break reviews
Where borrowers have had payment breaks on their credit cards, personal loans and mortgages, lenders will now be expected to start contacting them as their payment holidays come to an end and ask customers if they can start making repayments again.
Where they cannot, they will be able to request a further extension to their existing payment break, but only until October 31, 2020. However, if they can begin making even partial payments, lenders will expect them to start paying again.
The new guidance which has already been issued by the FCA for mortgages and is likely to be echoed in the coming days with guidance for credit cards, personal loans and catalogue debts is clear: more emphasis will now be placed on getting people paying again if possible. Also, where people are struggling to begin making repayments, they may now be advised to get debt advice.
Speaking about the new guidance, Interim Chief Executive of the FCA Christopher Woolard said: “We have been working closely with other authorities, lenders and debt charities to support consumers in the current emergency.
“The proposals we have announced would provide an expected minimum level of financial support for consumers who remain in, or enter, temporary financial difficulty due to coronavirus. Where consumers can afford to make payments, it is in their best long-term interest to do so, but for those who need help, it will be there.”
No cliff edge ending for payment breaks
It seems clear the FCA is keen to avoid a financial cliff edge for millions of consumers.
This means people who are still furloughed or receiving help from the UK Government’s self-employment scheme will not have support removed from them.
However, it’s also likely hundreds of thousands, if not millions, over the next few months, will start returning to some form of financial normality and for many who were struggling before, or are now struggling, the value in getting good advice will become more important than ever.
The FCA has issued the following guidance to mortgage firms:
• Where people can begin making repayments again, they should, as this is in their best interest.
• Anyone who needs further help, should receive it, by extending payment breaks until the 31st October 2020 or accepting reduced monthly payments, such as interest only.
• Lender should be prepared to accept new applications for payment breaks if someone is affected by the Crisis and has not yet received a payment break.
• Finally, they should continue the freeze on all repossessions until October 31, 2020.
The FCA have also reiterated their previous guidance to lenders that payment breaks should not impact negatively on borrowers’ credit reports, but equally, they should make it clear to customers that Credit Reports are not the only source of information that lenders use when making new lending decisions.
Credit cards, personal loans, overdrafts and catalogue debts
The FCA is also consulting on further guidance in relation to other types of debts such as credit cards, personal loans, overdrafts and catalogue debts; with the guidance expected to be issued shortly after the consultation is finished.
It is expected that guidance, will mirror that for mortgages and also require lenders to contact customers to see if they can begin repayments again, even partial payments and where they cannot, to consider extending the payment breaks for another three months.
For overdrafts, the FCA is expected to advise Banks that where customers have been affected negatively by the Crisis, they should allow customers to apply for a £500 interest-free overdraft until the end of October 2020.
Payday loans, car finance and buy to rent
The FCA has still to consult on or issue further guidance on payday loans, car finance agreement or buy to rent borrowing, but is expected to begin a consultation in the coming weeks.
If you have been affected negatively by the COVID-19 Crisis and would like to speak confidentially with a Carrington Dean money advisor, call 0808 253 3474.
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