The Treasury and the Financial Conduct Authority (FCA) have set out proposals and will confirm sometime after Tuesday 26 May exactly what will happen.
As it stands the proposals will mean that if you have been granted a payment holiday due to difficulties paying because of coronavirus, you may be able to extend this for a further three months.
Other options might also be considered such as reducing or waiving interest or extending the term of the loan, i.e. increasing the number of years to repay it.
For customers yet to request a payment holiday, the time to apply for one would be extended until 31 October 2020.
The current ban on repossessions of homes will also be extended to 31 October 2020. This will ensure people are able to comply with the government’s policy to self-isolate if they need to.
John Glen MP, Economic Secretary to the Treasury, commented: “We’re doing everything we can to help people with their finances at this difficult time, and that includes making sure people get the support they need with their mortgages. That’s why we’re working with the banks and lenders to extend payment holidays if people need them.
“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.”
Christopher Woolard, interim chief executive at the FCA (the financial regulator), 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.
The guidance sets out that:
- Customers who can afford to return to full repayment should do so. 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, including a further three month deferral.
- 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.
- Firms should consider signposting customers towards sources of debt advice if they are really struggling and be particularly aware of the needs of vulnerable customers and how they engage with them.
- For customers who aren’t able to use online services, firms should make it easy for them to access alternatives.
This guidance only applies to mortgages. It does not apply to consumer credit products such as credit cards, loans and current accounts, which are covered by separate guidance which will be updated in due course.
Industry comment
Kate Davies, executive director of the Intermediary Mortgage Lenders Association (IMLA), has some words of advice: “This morning’s consultation paper from the FCA has extended the payment holiday window, but it has also recognised the importance of helping borrowers who can afford to make repayments to resume doing so as soon as possible.
“It is absolutely vital that borrowers understand that this scheme is for a payment deferral, not a cancellation. While it can provide a lifeline to some borrowers by helping with short-term cash-flow issues, the longer customers are on a ‘payment holiday’, the more interest will accrue on their mortgage – albeit at relatively small amounts as interest rates remain low.
“Those who are able to afford to resume their normal contractual payments should consider doing so as early as they can, as this will help to put them in a better position in the long term.
“Lenders are and will be making strenuous efforts to contact borrowers to discuss whether to commence or extend a deferral or their options for resuming repayments.
“It’s really important that borrowers respond to and engage with their lenders in this process to make sure that the right decisions are taken. Although the government’s scheme has been extended by another three months, this window will go by quickly.”
Debt charity comment
StepChange Debt Charity welcomes these proposals and its head of policy, Peter Tutton, commented: “Given that there will undoubtedly be people currently furloughed who are subsequently made redundant, it’s very clear that some mortgage holders who are going to need help perhaps don’t even realise it yet. This extension is therefore essential.
“At the same time, a further temporary extension also makes sense for others who are unable to get back to their normal financial situation as soon as they had hoped, but who will do before long.
“We strongly support firms signposting all negatively affected customers to debt advice: charities like StepChange can help people think through their whole financial situation, not just their mortgage.
“The mortgage extension does beg the question about whether similar interventions will be forthcoming from the Government to protect tenants in a similar way. The FCA cites “keeping a roof over people’s heads during a public health crisis” as part of its rationale for intervention, and this applies as much in the rented sector as to the mortgage sector.”
