Mortgage holidays came into place in March to help borrowers who were impacted by the Coronavirus crisis. They offered a three month break from mortgage repayments without having an impact on personal credit ratings. Whilst the break from payments is due to end in June, the Treasury announced that those who needed to, would be able to defer for a further three months.
Chief Executive of Nationwide Building Society, Joe Garner, claimed that having to extend your holiday once the three months comes to an end in June could be a sign that borrowers are ‘struggling’ and their credit rating should be marked accordingly.
Lenders across the country use credit ratings as a way of checking eligibility for a loan and whilst Garner suggests it shouldn’t be a ‘big black mark’ it may well muddy the waters for borrowing in the future. By marking borrowers credit files for extending their mortgage holiday whilst many deal with factors such as furlough, sick-pay and self-employment, lenders could find it trickier to distinguish between potential lending candidates in the future. This could create a knock-on effect for investors who may face uncertainty on the stability of their investments.
Mortgage holidays have proved popular across the UK with 1.8 million approved by the UK banking sector throughout the crisis. Despite their popularity, it’s expected that not all of those who initially took advantage of the scheme will wish to extend.
Garner suggested that of the 280,000 Nationwide customers who took out a mortgage holiday, many would have been those who were “on top of” their finances and would have done so as a precaution rather than due to dire financial need. This offers optimism for lenders that despite the holiday window being extended, not all borrowers will feel the need to defer payments after June.
It’s not just mortgage payments that lenders have seen get deferred with 877,800 credit card payment freezes and 608,000 payment holidays for those with personal loans. Millions of people across the county have also seen the first £500 of their overdraft made interest-free over the same three month period.
Payment holidays have proved tricky for lenders and investors – but despite this, as the three month period comes to a close, many borrowers are expected to re-start their payments as many businesses reopen and people gradually return to work. As the economy begins the road to recovery, lending is expected to increase and as a result, payment deferrals and interest free windows will come to an end.