Working together to navigate the changing market

Responding to the needs of customers affected by the COVID-19 pandemic, mortgage payment holidays can be extended for a further three months, under plans from the government and regulators.

The availability of a three month mortgage holiday was first announced in March as part of an unprecedented package of support for individuals, businesses and the economy due to the COVID-19 pandemic. Figures from UK Finance show 1.86 million mortgage payment holidays have been issued as of May 28th 2020 – equivalent to one in six mortgages.

Regarding the mortgage payment holiday scheme, on April 3rd 2020 Springtide Capital cautioned:

“The money you save from a payment holiday will need to be paid back at some stage during the lifetime of your mortgage and are specifically aimed at those that find themselves in financial difficulty. We encourage you to speak with one of our experienced brokers and we will help you understand the pros and cons specific to your mortgage. It is important that you understand the potential implications and all your alternative options”

Springtide Capital further strengthened their position later the same month stressing that borrowers should only take a repayment holiday as a “last resort”.

What to expect:

The Financial Conduct Authority (FCA) has published new draft guidance for lenders which will set out the expectations for firms and the options available to their customers. Following a short consultation, the guidance is set to come into force imminently and lenders will contact their customers whose mortgage holiday is coming to an end.

The outline guidance is set out as follows:

  • Customers who can afford to return to full repayment should do so 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.
  • Anyone who continues to need help gets help– lenders should continue to support customers who have already had a payment holiday where they need further help. 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. As part of this firms should consider a further three-month payment holiday.
  • Extending the time the scheme is available to people who may be impacted at a later date– customers that have not yet had a payment holiday and experiencing financial difficulty will be able to request one until 31 October 2020.
  • Keeping a roof over people’s head during a public health crisis– the current ban on repossessions of homes will be continued to 31 October 2020. This will ensure people are able to comply with the government’s policy to self-isolate if they need to.
  • Payment holidays and partial payment holidays offered under this guidance should not have a negative impact on credit files. However, consumers should remember that credit files aren’t the only source of information which lenders can use to assess creditworthiness.
  • This guidance would not prevent firms from providing more favourable forms of assistance to the customer, such as reducing or waiving interest.
  • Firms should consider signposting customers towards sources of debt advice. Debt advice may be helpful for customers coming to the end of payment holidays and may be particularly useful for consumers with pre-existing payment shortfalls or who are likely to be in longer-term financial difficulty.
  • When implementing this guidance, firms should be particularly aware of the needs of their vulnerable customers and consider how they engage with them. For customers who aren’t able to use online services (such as digital channels), firms should make it easy for customers to access alternatives.

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 re-start mortgage payments, it is in their best interests to do so. But where they can’t, a range of further support will be available.’

It has been recently reported that Joe Garner, chief executive of the Nationwide Building Society has stated that a borrowers credit file should be marked if they take a further mortgage holiday. It has not yet been decided whether further mortgage repayment breaks will be marked on credit files. Currently, lenders can see whether a holiday has been taken without it being negatively marked on credit history.

Henry Knight, Managing Director of Springtide Capital commented:

“Our advice remains the same, a mortgage holiday is only for people who absolutely need one. We are pleased guidance is being set out but we urgently need to hear from lenders to understand how this further mortgage payment holiday extension will impact borrowers. Brokers need banks to be transparent on the implications of a borrower taking a mortgage holiday”

This is a difficult and changing time and it is not yet apparent what the long-term impact of the payment holiday scheme will have on both borrowers and the market. To a large extent, the majority of the financial effects of the lockdown have yet to be fully realised, but ultimately it serves no one’s interests if a borrower takes on an unaffordable mortgage.

The mortgage payment holiday scheme is a vital lifeline to those homeowners who are suffering financially due to the impact of the COVID-19 pandemic. But, whilst helping with short-term cash flow issues, a full understanding of the implications of a mortgage payment holiday must be thoroughly investigated. Lenders must be transparent in how they are going to view or interpret information in the medium to long term. The mortgage market has a strong appetite to lend and is committed to helping those customers who need assistance. The upcoming regulation from the FCA will help provide certainty for all parties.

Sources:

https://www.fca.org.uk/publications/guidance-consultations/mortgages-coronavirus-updated-draft-guidance-firms

http://emaila.ukfinance.org.uk/q/1H8LdNb8HjSWcgJdMWTNN/wv

http://springtidecapital.com/

https://www.fca.org.uk/news/press-releases/fca-support-customers-struggling-mortgage-coronavirus

https://www.mortgagesolutions.co.uk/news/2020/04/22/brokers-warn-mortgage-holidays-should-be-last-resort-for-borrowers/

https://www.fca.org.uk/news/press-releases/fca-support-customers-struggling-mortgage-coronavirus

https://www.bbc.co.uk/news/business-52847131