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Law360, London (May 1, 2020, 1:51 PM BST ) Britain's financial regulator said Friday that it will give banks an additional three months to contact mortgage holders who are eligible to switch to a better rate, in a move to ease the disruption caused by the COVID-19 outbreak.
The Financial Conduct Authority said it is revising an existing rule that requires lenders to contact so-called mortgage prisoners and offer to move their loans and secure better terms. Such borrowers are trapped in expensive mortgages because of strict borrowing criteria when cheaper loans should be available to them.
The regulator had originally required banks to contact such customers and offer them better terms by September, but has now given them until Dec. 1.
The extension is necessary because banks and lenders cannot offer different loans or remortgaging deals because of the financial hit they have taken since the coronavirus pandemic took hold, the FCA said.
"Given lenders' inability to offer new switching options to mortgage prisoners it would be wrong to require letters to be sent to consumers at this time," the watchdog said. "We are therefore extending the window during which we expect firms to contact consumers about switching options by three months."
The watchdog said it does not want mortgage prisoners to be contacted while there are no feasible options available to them. But it said it would review the situation and make sure products are available again as soon as possible.
"We are firmly committed to ensuring better outcomes for mortgage prisoners, and are working with the industry to ensure switching options are brought to market as soon as possible," the finance regulator said.
The watchdog reiterated its advice to mortgage lenders that they should hold off from repossessions during the COVID-19 pandemic. The exception is if the borrower chooses to proceed with a repossession. The FCA also reminded lenders that all borrowers should be offered payment freezes during the global health crisis.
The watchdog said it has contacted mortgage lenders telling them to "critically review" their variable rates against their funding costs and contract terms and determine whether they should adjust the rates during the pandemic. It said customers must be treated fairly over variable rates during the downturn.
British lenders have granted mortgage "payment holidays" to more than 1.2 million customers, a trade body representing the sector said in April. UK Finance said that banks have provided payment breaks for one in nine mortgages since March 17.
Lenders announced in March that they would support homeowners who have lost jobs or are struggling to make repayments because of the coronavirus pandemic.
--Additional reporting by Najiyya Budaly. Editing by Ed Harris.
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