Saturday, 06 June, 2020

SMP: Proposed financial relief by FCA will assist recovery of mortgage market

Coronavirus: Loan and credit card payments set to be frozen
Ginger Lawrence | 04 April, 2020, 11:58

The proposed financial relief by Financial Conduct Authority (FCA) for those customers impacted financially by the coronavirus outbreak will assist the recovery of the mortgage market according to The Society of Mortgage Professionals.

Lenders should also ensure that for customers who have been hit financially by the coronavirus and already have an arranged overdraft on their main personal current account, up to £500 will be charged at zero interest for up to three months.

If confirmed, measures would come into force by 9 April.

After the FCA recently announced an "overhaul" for overdraft charges, many banks increased their charges and clustered around a similar figure of about 40%.

For context, these inflated interest rates include Nationwide replacing a daily fee of 50p for arranged overdrafts with an interest rate of 39.9 per cent, HSBC's interest rate doubling from 19.9 to 39.9 per cent and many other big names (Santander, Lloyds and NatWest) raising interest rates to almost 40 per cent.

Christopher Woolard, interim chief executive of the FCA, said: "Coronavirus has caused an unprecedented financial shock with far-reaching consequences for consumers in every corner of the UK".

Free advice and support with debt is also available from a number of organisations, including StepChange, National Debtline, PayPlan or Citizens Advice.

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The FCA detailed that the measures are designed as a stop-gap to quickly support users of certain credit products who are facing financial difficulties.

Lloyds Banking Group said it welcomed the FCA's guidance and since the start of the pandemic it has helped thousands of customers using the temporary support measures already introduced.

"There is no clarification on what happens with hire-purchase or conditional sale, on which most cars are financed", said Bill McCaffrey, head of consumer finance at CMC law firm.

He said the changes should enable lenders to give customers further support, but cautioned that customers needed to be "able to manage their borrowing" after the crisis.

With the exception of the £500 overdraft proposal, firms would be entitled to charge a reasonable rate of interest where a customer requests a temporary payment freeze. If the measures are put into place, customers would be able to ask lenders for a payment freeze or for a reduction in monthly payments during this period. Missed payment fees on mortgages, credit card, and loans will be waived for three months.

The FCA also confirmed that the measures, if agreed, will not affect credit scores but do not extend to other high-cost credit loan sources such as payday loans.