Mortgage holidays and repossessions suspension to be extended - reaction and analysis

Proposals were included in a short consultation that ends on Tuesday May 26, which seeks industry views on guidance that for customers yet to request a payment holiday, the time to apply would be extended until October 31.

For homeowners 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, the FCA said.

An existing ban on repossessions will also be continued to October 31, to ensure people can comply with the government’s policy to self-isolate if needed.

As UK Finance figures showed there are now over 1.8 million mortgage holidays in place, Christopher Woolard, interim FCA chief executive, 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.”

If the proposals are confirmed, the FCA would also expect the following:

• Customers who can afford to return to full repayment should do so. At the end of a payment holiday, lenders will be expected to contact customers to find out if they can resume payments and if so, agree a plan on how the missed payments will be repaid.

• Lenders should continue to support customers who already had a payment holiday where they need further help. Firms are expected to engage with customers and find out what they can re-pay and, for those who remain in temporary financial difficulty, offer more support. As part of this firms should consider a further three-month payment holiday.

• Lenders should ensure payment holidays and partial payment holidays don’t have a negative impact on credit files. However, the FCA said that “consumers should remember that credit files aren’t the only source of information which lenders can use to assess creditworthiness.”

So far, the number of mortgage payment holidays recently increased to 1.8 million from 1.6 million, with Lloyds and RBS accounting for well over a million of those between them.

The FCA added that the new guidance would not prevent firms from providing more favourable forms of assistance to the customer, such as reducing or waiving interest.

Firms should also consider signposting customers towards sources of debt advice, the regulator said, and be “particularly aware of the needs of their vulnerable customers and consider how they engage with them”.

Industry reaction

Before the extension was announced, there were warnings within the mortgage industry about interest being built up during payment holidays.

An analysis by mortgage broker L&C Mortgages estimated that in total, payment holidays could cost borrowers £821m in extra interest. Analysing UK Finance data, L&C estimated that a borrower on a typical deal could end up paying £500 more, than they would have done without a payment break, due to interest accruing on the unpaid sum.

What tended to echo among the industry reactions today was this notion that interest will still accrue for borrorowers during payment holidays, and that any outstanding amounts from the holiday duration will still have to be repaid.

Rob Griffiths, director at the Mortgage Market Alliance, said: "We need to reiterate the point that a holiday does not mean the lender pays the borrower’s mortgage throughout the three month (or longer) period. Missed payments will be added to the loan."

Alastair Douglas, chief executive of TotallyMoney, said it’ll be important for borrowers to understand that interest will still be added during a holiday, so choosing to reduce payments, rather than stop altogether, could be a better option for some.

Lenders have until 5pm on Tuesday 26 May to respond to the guidance, which will take effect shortly afterwards. The new guidance can be found on the FCA’s website.