Lenders have expressed their support for the FCA’s new guidance on handling borrowers impacted by the pandemic, but some experts have raised concerns that the burden of dealing with forbearance measures could further restrict their appetite to lend.

The regulator has told firms it expects them to take a highly individualised approach to the support measures they offer borrowers once the industry-wide payment holiday scheme comes to an end on 31 October. The steps lenders could take include moving borrowers onto interest-only loans or part-and-part arrangements; capitalising any missed payments and adding them to the outstanding mortgage balance; extending the term; and reducing the interest rate.

Intermediary Mortgage Lenders Association executive director Kate Davies welcomes the FCA’s guidance and says it mostly confirms and codifies what lenders are already doing. However, she warns that the implications for lenders are considerable.

She says: “It is going to create a challenge, but it will affect different lenders in different ways according to the profile of their customers. We asked our members and for mainstream lenders they expect that 70-80 per cent of borrowers who took a payment deferral will be able to repay the shortfall immediately, either through monthly payments or by capitalising the debt into their loans.”

This chimes with UK Finance figures, which suggest that 70 per cent of borrowers whose payment deferral period had come to an end managed to successfully resume payments.

However, Davies says the picture is different for lenders dealing with more complex borrowers.

“They are specialists for a reason. They are often dealing with people who were already financially challenged before the pandemic. Some lend to the self-employed and people whose employment may be more precarious and who may not have been able to take advantage of the furlough scheme or other support. It could be a double or triple blow for those borrowers, and an awful lot of administration for lenders.”

Davies says the additional pressures may result in some lenders scaling back on new business in order to cope.

“We saw that when the lockdown started. A number of lenders had to retrench and pull products to concentrate on existing customers, dealing with phonecalls and deferrals. Lenders also had to deal with their own staff working from home, using new technology and home schooling their kids all at the same time.

“It wouldn’t be surprising if the lenders with a higher proportion of customers with deferrals have to prioritise dealing with those.”

Independent industry consultant and former FCA mortgage manager Lynda Blackwell believes the watchdog has taken the right approach in requiring firms to treat borrowers as individuals when drawing up forbearance measures. However, she agrees with Davies that the impact on lenders is likely to be significant.

She says: “I think the FCA wants lenders to really help out borrowers, not just churn them over for another three-month deferral, because that’s going to be expensive for the customer. So the FCA is asking lenders to look at potentially moving customers onto interest only, or whether there is a better product out there for customers.”

But she warns: “One of the problems is that arrears up until March were pretty negligible – they were at record lows. When that happens, what you always find in the market is that lenders are focused on sales and they lose focus on helping customers who are in payment difficulties.”

She says: “For lenders to not just take a broad-brush approach but also look in detail at individuals it is probably going to be quite a big ask. I suspect there are going to be quite a few lenders out there that will struggle. The question will be which lenders have got the systems in place to be able to actually do that.”

Meanwhile, Accord director of intermediary distribution Jeremy Duncombe is glad that the language around ‘payment holidays’ has now shifted in favour of ‘payment deferrals’ because it raises borrowers’ awareness of the fact the money needs to be paid back.

“That is a critical part of getting customers to understand what exactly it is that they signed up to, and I think [the fact they were called holidays] was part of the reason that so many customers took the payment deferrals in the first place.”

However, Duncombe reports that the “vast majority” of customers who took a deferral have now been able to resume payments.