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Law360, London (September 14, 2020, 12:28 PM BST) -- Mortgage borrowers who ask their lender for support from November will have their credit files updated to reflect their financial circumstances, the Financial Conduct Authority said Monday, ending the era of penalty-free payment freezes during the coronavirus pandemic.
The City watchdog said in updated guidance that banks should continue to help home-owners who applied for payment deferrals or have found themselves in financial difficulty because of the COVID-19 crisis. But any support they hand out after Oct. 31 will be reflected in the credit files of borrowers.
"This will help to ensure that lenders have an accurate picture of consumers' financial circumstances and reduce the risk of unaffordable lending," the FCA said in its guidance. "Firms are required to be clear about the credit file implications of any forms of support offered to borrowers."
Credit files include data on an individual's borrowing and repayment activity. The information determines a consumer's credit score, which will affect how lenders view their credit risk.
British lenders agreed to allow mortgage payment freezes in March after Chancellor Rishi Sunak announced an "unprecedented package" of government-backed loans worth £330 billion ($425 billion).
The initial payment holidays were slated to last for six months, but the regulator announced a three-month extension in June until the end of October. Borrowers who had fallen ill or lost jobs because of the pandemic were able to defer payments on their homes without taking a hit on their credit file.
The FCA said Monday that banks can still offer long-term support to their mortgage customers, which could include extending their repayment term or restructuring their loan. And short-term support could include reduced repayments for a specified period.
Any help should reflect a borrower's circumstances, the regulator said. Lenders should also prioritize customers who are at most risk of harm or face the greatest financial difficulties.
"Some consumers will continue to be impacted by coronavirus in the coming months, or be impacted for the first time," Christopher Woolard, the FCA's interim chief executive, said. "Consumers in these situations will benefit from firms providing them with tailored support.
"However, it is very important that consumers who can afford to resume mortgage payments should do so," he added.
The watchdog said it will monitor lenders to ensure that they are treating customers fairly.
--Editing by Ed Harris.
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