As with its previous guidance, the regulator’s priorities continue to be the protection of borrowers and enabling borrowers to comply with the government’s guidance on social distancing and self-isolation.
As a consequence, the updated guidance states that lenders should not commence or continue any repossession proceedings against any borrower before 31 October 2020, extending the moratorium against repossessions to a period of seven months.
However, this raises a number of questions for the mortgage industry, some of which I’ve tried to answer below.
Can lenders commence possession proceedings against a borrower due to an event of default?
While the government is taking steps to lift the lockdown measures, the priority remains that borrowers do not lose their homes and are able to comply with the current guidance on social distancing and self-isolation.
As such, the moratorium on possession proceedings continues to apply to all mortgage borrowers at risk of repossession, whether or not their incomes are affected by Covid-19.
Can lenders enforce a possession order obtained before the Covid-19 pandemic?
The guidance states that even where a possession order has already been obtained by a lender, it must not be enforced while the current guidance continues to apply i.e. before 31 October 2020.
This can be exceedingly frustrating for lenders that obtained possession orders prior to the lockdown and for reasons entirely unconnected to the pandemic, but should be complied with nevertheless.
Can lenders continue to charge interest on the outstanding loan?
Yes. The current guidance issued by the government and FCA permits lenders to continue to charge interest on a loan, plus any fees and other charges in accordance with the terms of the loan agreement.
Are lenders bound by the government and FCA guidance?
To meet the challenges Covid-19 could pose to borrowers, the FCA has been clear that it expects all regulated mortgage lenders and administrators to comply with the guidance.
Unregulated companies, who are technically out of scope of the FCA’s guidance, which make decisions that affect mortgage borrowers are, given the current emergency, expected to adopt this guidance on a voluntary basis as an appropriate response.
What are the consequences of non-compliance with the guidance?
Strict adherence to the government and the FCA guidance is strongly recommended.
The FCA has said it will consider the extent to which a lender has, or has not, adopted this guidance in assessing whether those companies, or senior individuals within those firms, are fit and proper as part of any future application for authorisation.
In any event, given that the courts have generally followed the FCA’s previous guidance, they are likely to implement extending Practice Direction 51Z to bring the court rules in line with the FCA’s updated guidance.
How long are these measures going to be in place?
In light of the unprecedented circumstances surrounding Covid-19, the FCA has said its guidance will be reviewed in the next three months.
Therefore, these measures are expected be in place until at least September 2020 and, more probably, until the end of October 2020.
It is however possible that further relaxation to the government guidance on social distancing and self-isolation may prompt the FCA to review its guidance to reflect the change in circumstances.