The trade body also objected to the FCA’s proposal to add any payment holiday extensions to arrears of those already behind on their mortgage payments before the crisis hit.
In its response to the regulator’s plans to extend mortgage holidays, UK Finance estimated that around 60 to 70 per cent of borrowers who had paused payments could afford to resume full payments at the end of their current break.
The FCA’s draft guidance presumes that firms should automatically offer all borrowers who have already taken a payment deferral a further payment deferral for three monthly payments, the trade body noted.
“We do not believe that such as approach is in the best interests of customers and that a more tailored approach would be more appropriate at this time,” UK Finance said.
“The tests that a firm must meet to rebut this presumption and demonstrate that this approach is not in the customer’s best interests are currently set too high and do not allow firms to properly assess a customer’s circumstances.”
It noted that this creates a risk that customers who do not need a full payment deferral for a further 90 days nevertheless self-select to take a further deferral under the proposed guidance, when maintaining repayments, in whole or in part, would be more appropriate for the customer in the longer term, without creating short term financial hardship.
UK Finance added: “We maintain that a further payment deferral should sit within a menu of options offered to customers following a triage process.
“The expectation to offer a payment deferral is inconsistent with the assertion that more favourable forms of assistance are possible. We ask that the draft guidance is revised to make clear that all options have equal weight.”
Adding to arrears
UK Finance called for the regulator to allow equal treatment of borrowers who were previously in arrears when extending their payment holiday.
Under the current draft rules, for customers in payment shortfall prior to 20 March a first period of payment deferral can be automatically capitalised.
However, any subsequent full or partial deferral cannot be added to the outstanding loan and any period of payment deferral beyond three months will be treated as arrears.
“We think this would be confusing and unfair for customers and complex for firms to operationalise,” UK Finance said.
“In line with the draft guidance requirement that ‘… customers in payment shortfall should not receive less favourable treatment than other customers …’ we believe customers in payment shortfall should be afforded the same treatment.”
First deferral and partial payments
UK Finance also noted that the updated guidance treated those who had not yet taken a payment holiday but subsequently requested one differently from those who had already requested one.
It argued that the original guidance should be maintained as firms have implemented the existing guidance and customers should be treated consistently.
And it called for the possibility of partial payment deferrals to be given equal prominence throughout the guidance and for the process of those seeking an extension.