Plans to give homeowners 12-month mortgage payment holidays are being reviewed by the Financial Conduct Authority (FCA) according to reports from various outlets.
The plans are being tabled in a bid to assist homeowners who are in financial difficulty and prevent mass defaults, in turn reducing the repossession of homes.
FCA officials have stated that the original 3-month holidays would be reviewed regularly and they would extend the terms if deemed to be appropriate action.
UK Finance’s latest figures show that more than 1.2 million homeowners have applied for mortgage holidays, over 700,000 of which were granted in April.
New guidance from the FCA states borrowers who have chosen to take a mortgage holiday out should not have their credit score adversely affected. They should also not be treated any differently than those who have opted to keep up with their regular scheduled payments, which has cleared things up for borrowers, lenders and investors alike.
It has also come to light that those that have opted to take a mortgage holiday will still be able to make product transfers during this period.
There have been growing concerns that borrowers may come to the end of their holidays without any support, but this has been addressed by an FCA spokesperson, who is quoted as saying:
“We are currently working with firms, consumer and debt advice groups, and government, to consider what other forms of support may be needed when the payment freezes come to an end. But we have not yet made any final decisions. We will confirm our plans in the coming weeks.”
It added that the guidance will be reviewed within the next three months and payment holidays could be extended if appropriate:
“We will review this guidance in the next three months in the light of developments regarding coronavirus and will issue amended guidance extending the period of the payment holiday if appropriate,” it said.
Lenders have also be advised to be proactive in how they deal with customers who report that they may be facing difficulty when making payments.
To ensure more compliance from lenders, the FCA has said that they may refer to how payment holidays were dealt with by firms in enforcement cases further down the line.
Guidance for lenders has been published by the FCA, whose statement is clear in its guidelines and outlines exactly how firms should act in a situation whereby a customer may have issues with repayment.
It states;
“A firm should give customers adequate information to understand the implications of a payment holiday, including the consequences (if any) for the total amount payable under the mortgage contract, the term of the mortgage contract and the amount of contractual monthly instalments.
A firm may decide to put in place an option other than a three-month payment holiday, if it is appropriate to do so in the individual circumstances of the case and it is in the best interests of the customer.
This could include a payment holiday of fewer than three months, if the customer requests a shorter payment holiday. This guidance does not prevent firms from providing more favourable forms of assistance to the customer, such as reducing or waiving interest.”
And a final word from our experts here at Quadrin Group;
It is worth noting that nothing official has been published on the FCA’s website in relation to any potential extension of payment holidays.
The initial guidance was first published on 20th March 2020 and it was noted the guidance would be reviewed in 3 months. This takes us to 20th June 2020. However, given the revised employee furloughing provisions under the government’s ‘job retention scheme’ it may well be we see this guidance updated before this.
It is also worth noting that whatever renewed guidance is provided in relation to mortgage – payment holidays, it is also likely to apply to unsecured lending e.g. personal loans and credit cards etc.
Not only would a 12-month break from repayments be unprecedented, but for lenders it will bring a whole new meaning to the expression “payment shock” when borrowers have to re-commence repayments having completely lost the habit of making any payments for credit.
For more insight and guidance into UK lending in light of Covid-19, you can get our quarterly white paper. Email konstantine.pastras@quadringroup.com for your free copy.
