Extension of mortgage payment holidays proposed by FCA
Borrowers who are taking a three-month mortgage payment holiday could extend it for another three months, or start making reduced payments, under proposals from the City regulator.
Three-month mortgage payment holidays are already available for borrowers who are struggling due to the financial impact of coronavirus.
The Financial Conduct Authority (FCA) has proposed that, for customers who have not yet asked for one, the time to apply for one would be extended until October 31.
The current ban on homes being repossessed would also be continued until October 31.
For those who are still experiencing temporary payment difficulties due to coronavirus, firms should continue to offer support – which could include extending a payment holiday by a further three months or starting to make reduced payments under the plans.
More than 1.8 million mortgage payment holidays have been taken up, and the first of these are due to come to an end in June.
Laura Suter, personal finance analyst at investment platform AJ Bell, said: “The three-month extension of mortgage holidays will be welcome relief for those households struggling with a fall in income and uncertain job prospects during the current crisis.”
But she added: “Based on the average mortgage in the country, UK banks were already set to make more than £800 million more in additional interest by people taking a mortgage holiday and that will leap up now the period has been extended.
“While the break in payments will be a lifeline for some people, they should research all the options first, including extending their term to reduce monthly payments, seeing if they can switch to a lower rate or switching to interest-only for a period.”
The FCA is inviting feedback by May 26 and expects to finalise the guidance, which applies only to mortgages and not other credit products, shortly afterwards.
Christopher Woolard, interim chief executive at the FCA, said: “Our expectations are clear – anyone who continues to need help should get help from their lender.
“We expect firms to work with customers on the best options available for them, paying particular attention to the needs of their vulnerable customers, and to provide information on where to access help and advice.
“Where consumers can afford to restart mortgage payments, it is in their best interests to do so. But where they can’t, a range of further support will be available. People who are struggling and have not had a payment holiday will continue to be able to apply until October 31.”
Generally, mortgage interest still builds up during a payment holiday, unless the lender says otherwise. And the outstanding debt will still be owed by the borrower.
This may mean a borrower might find they need to extend the length of their mortgage term when they come to the end of a payment holiday, in order to make sure their monthly payments are around the same level they were before.
If the proposals are confirmed, the FCA would still expect customers who can afford to return to full repayments to do so as this is in their best interests.
At the end of a payment holiday, firms should contact their customers to find out if they can resume payments and if so, agree a plan on how the missed payments will be repaid.
Firms are expected to engage with their customers and find out what they can repay and, for those who remain in temporary financial difficulty, offer further support.
The FCA said payment holidays and partial payment holidays offered under this guidance should not have a negative impact on credit files.
But it said people should remember that credit files are not the only source of information which lenders can use to assess creditworthiness.
This guidance would also not prevent firms from providing more favourable forms of assistance to the customer, such as reducing or waiving interest.
Economic Secretary to the Treasury John Glen said: “Everyone’s circumstances will be different, so when homeowners can pay some or all of their mortgage, they should work with their lender on a plan; but if they are still struggling, I want them to know that help is there.”