Extra support has been announced by the FCA for those households that are struggling to keep up with mortgage repayments because of the coronavirus outbreak.
In a new proposal, the financial regulator has set out additional guidelines that, if passed, would allow mortgage customers to extend their mortgage holiday by a further three months.
For those who haven’t yet requested a payment holiday, firms will be also be asked to allow a further three months in which they can apply, taking the application period up to the end of October 2020.
Mortgage holidays were first introduced by the FCA in March as a means of lessening the economic devastation of the coronavirus crisis. With many households facing furlough, reduced work and redundancy, the financial regulator offered it as a fair way for people to defer their mortgage payments without losing their home or damaging their credit rating.
So far, 1.82 million people have taken a mortgage holiday – that’s a sixth of all mortgages in the UK.
The proposal will be open for comment until close of play on 26 May, and it’s expected the guidance will be finalised soon after.
Of the proposed extension, Christopher Woolard, FCA Interim 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.
“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. People who are struggling and have not had a payment holiday, will continue to be able to apply until 31 October.”Get free advice
What changes have been proposed for mortgage payment holidays?
The FCA have introduced the support with the clear disclaimer that only those who are really struggling to make payments against their mortgage should apply for the extended holiday. If the new guidelines are passed, it will mean that:
- Banks and other lenders will be expected to support those customers who need more time before they can resume payments. Firms will be encouraged to offer an additional three months to customers who aren’t in a financial position to resume payments straight away.
- Some people may not yet have taken a payment holiday, but may have only just become financially impacted by the Covid-19 outbreak. Those mortgage customers should have the option of taking a mortgage holiday up to 31 October 2020.
- The ban on repossessing anyone’s home during the coronavirus crisis will also be extended in order to help people stay safe and self-isolate without fear of losing their home. This is also to be extended until the end of October 2020.
- Any payment breaks that have been taken due to the Covid-19 crisis shouldn’t have a detrimental effect on a person’s credit file.
How does a mortgage payment holiday work?
When you take a mortgage payment holiday, you take a temporary break from making your monthly mortgage payments. However, it’s worth remembering that you don’t take a break from your interest; this continues to accrue during the months in which you don’t pay. It’s critical that you contact your bank to request a mortgage holiday. If you miss a payment without notifying your lender that you intend to take a payment break, it could damage your credit rating. Instead, wait until you have clear approval from your bank before you cancel your mortgage direct debit. When the mortgage holiday comes to an end, you have to resume making your payments as usual.
How do I apply for a mortgage holiday?
Understandably, it’s a busy time for banks, building societies and other lenders, and the overwhelming uptake in mortgage holidays means this is likely to continue to be the case for some time.
As such, most banks have now made it possible to apply for a payment holiday online. In order to apply, you’ll need to decide how long you want to take the holiday for, and when you want it to start. You’ll also be asked to confirm that your finances have been affected by the pandemic.
If for any reason you can’t apply online, you’ll need to call your bank – but be prepared to queue. Approval times vary, so it’s worth confirming when the mortgage holiday will take effect when you apply.Get free advice
Should I take a mortgage holiday?
It depends. If you’re really struggling to make your payments, a mortgage holiday is a lifeline, in place to make sure you don’t lose your property and provide some temporary relief from what, for many households, is their biggest outgoing. But it’s important to be aware of the long-term implications of taking one:
- There will be some adjustment. You’ll need to find room in your budget when the mortgage holiday ends to resume payments. With that in mind it’s worth assessing what position you’ll be in at the end of the payment holiday and being realistic about how it will affect your budget from the outset.
- This isn’t free money. You’re still liable for any interest accrued during the payment holiday, as well as the payments you’ve deferred. When your mortgage resumes, it’s likely that the interest from the three or six month holiday as well as the payments you’ve missed will be added to your payment amount – making your monthly direct debit payments higher than usual.
- Potential creditors may still know. Although the FCA have pledged that taking a mortgage holiday won’t impact negatively on your credit file, they’ve also urged consumers to bear in mind that a credit file isn’t the only way creditors can assess information about consumer creditworthiness.