The regulator offered the recommendation as it released proposals on how the industry can help borrowers when the current support ends on 31 October.

It said lenders should use ‘long and short term’ options for those who still faced difficulties, which could include extending the repayment terms or restructuring their mortgage.

It advised, where customers needed further support in the short term after their deferral period ended, lenders should offer them no or reduced payments for a specified period to get them back on track.

Credit score implication

As well as offering self-help opportunities and money guidance the proposals also urge lenders to refer borrowers to debt advice if necessary.

But the FCA also said customers who needed further support in the form of deferrals would, after the end of October, see this reflected in their credit file.

This was to help ensure lenders had an ‘accurate’ picture of consumers’ financial circumstances and to cut the risk of them taking out un affordable loans.

Firms would need to be clear about these implications when discussing options with customers.

Christopher Woolard, interim chief executive of the FCA, said: “It is important that consumers who can afford to resume mortgage payments should do so.

“However, we understand that borrowers facing payment difficulties because of the pandemic will continue to face uncertainty and may also experience temporary interruptions in income.

“We are proposing that firms contact their borrowers in good time before the end of a payment holiday, and work with them to come up with a tailored plan to help get them back on track. Firms should not take a ‘one size fits all’ approach.”

Industry reaction

Charlotte Nixon, mortgage expert at Quilter Financial Planning said the proposals highlighted the importance of financial advice, particularly as there were implications for people’s credit scores if they continued to defer their payments.

She said: “Some of the strategies posed include allowing customers to switch to longer term mortgages to reduce their monthly payments to help deal with any change in finances as a result of the virus.

“These are big decisions that could have long term impacts on someone’s finances so it is important that customers seek professional help if they can, before making any decisions like this.

“Mortgages are often the biggest single piece of debt anyone takes on in their life and it is important to make sure that any decision works both for the short and long term if possible.

“Extending the term of a loan means it will cost more over the lifetime of the product so it is a decision that requires careful thought. For most people it will only be the right move if they face imminent financial difficulty.”

David Thomas, president and chair of the Society of Mortgage Professionals, echoed these views. He said: “The FCA’s proposals present an opportunity for all those in the mortgage advice community to demonstrate true professionalism in helping their clients to consider and negotiate their way through all options available to them at this time.”

Currently the draft guidance, under which these suggestions are included, is being consulted on, with stakeholders being able to submit comments until 1 September.

In the meantime, the current guidance will provide support for those impacted by coronavirus until 31 October 2020. This allows consumers to take a first or second three-month payment deferral.

The FCA expects the current guidance to expire on 31 October, but will keep this under review depending on how the wider situation develops.