STRUGGLING mortgage customers will be offered extra help once payment holidays end in October but the support will damage credit scores.
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Struggling mortgage customers will be given extra help once payment holidays end from NovemberCredit: Alamy
So far, roughly two million mortgage borrowers have taken out payment holidays.
The Financial Conduct Authority (FCA) has today proposed new support, which says lenders should give mortgage borrowers tailored help depending on their individual circumstances.
The regulator said that although the majority of consumers will start to pay mortgages in full from November, many will remain in financial difficulty.
To help, customers will be offered repayment term extensions, meaning monthly payments will be reduced but you’ll be in debt for longer.
If households need more short-term support, lenders should also offer either paused or reduced payments for a specified period to give customers time to get back on track, the FCA said.
What is a payment holiday and should you apply for one?
PAYMENT holidays are when a lender agrees to pause your monthly repayments for a set amount of time.
This has to be agreed in advance, so don’t stop making your repayments until your bank has given you permission to do so.
The majority of lenders are offering payment holidays, so get in touch with your bank to find out what help it can give you.
Most of the time, it’ll require you to fill out an online form.
Typically, payment holidays are offered in extreme circumstances and are designed as an emergency measure to help you through a difficult financial time.
If you think you need to take one, you should speak to your lender to discuss your options – but do note that the break in payments doesn’t remove any debt or financial obligations.
Most lenders will also still charge interest during this time, so be aware that these costs will keep building up.
You should also always continue to make your normal payments if you’re financially able to.
Sue Anderson, head of media at debt charity StepChange, said: “If you can continue to make your normal payments without difficulty, then you should.
“Any temporary measures being offered by lenders don’t remove financial obligations – they are designed as an emergency measure to help you get through a period where your income may have taken a serious knock.
“However, if you need to use them then you shouldn’t hesitate to talk to your lenders.”
Under the guidance, firms are expected to prioritise helping borrowers who are at most risk of harm, or who face the greatest financial difficulties.
The support will help households who’ve suffered a drop in income due to the pandemic, and struggled to pay their mortgages.
But under the proposals, any extra help will now be reported to credit referencing agencies again following a freeze.
In March, credit reporting agencies agreed that any borrower who took up a payment holiday wouldn’t see their credit score impacted.
Taking a payment break is usually reflected in your credit score, which lenders use to assess how risky you are as a borrower.
A bad score can affect whether your application is accepted, how much interest you pay, how much you can borrow and your chances to remortgage for existing homeowners.
Repossession proceedings can also start again after October 31 – unless someone in the household is self-isolating or shielding – or if there’s a local or national lockdown, the FCA said.
Although, lenders must exhaust all other options before starting any action.
Furloughed workers trying to get on the property ladder may struggle to get a mortgage, as TSB recently listed salaries as £1.
Meanwhile, first-time buyer mortgages with a 10% deposit have made a comeback – but not if you want to buy a flat.
The industry now has until 5pm on September 1 to comment on the new draft guidance by the FCA.
If you’re struggling to pay your mortgage, make sure to contact your lender as soon as possible and ask for help.
Christopher Woolard, interim chief executive at the FCA, said: “It is important that consumers who can afford to resume mortgage payments should do so.
“However, we understand that borrowers facing payment difficulties because of the pandemic will continue to face uncertainty and may also experience temporary interruptions in income.
“We are proposing that firms contact their borrowers in good time before the end of a payment holiday, and work with them to come up with a tailored plan to help get them back on track.
“Firms should not take a ‘one size fits all’ approach.”
While Eric Leenders, managing director of personal finance at trade body UK Finance, said the industry has provided “unprecedented support” to help Brits through the pandemic.
He added: “As we begin to arrive at a ‘new normal’, a more tailored approach to customer support using a range of measures will likely be more suitable for those customers who continue to experience financial difficulties or find themselves newly affected by the ongoing crisis.
“It is important for customers who are able to resume their mortgage payments do so, however lenders are fully prepared to support any customers who face difficulty and it is vital that those who are facing payment difficulties get in touch with their provider as soon as possible.”
What do the experts say?
Debt charities are pleased about the extra help proposed by the FCA, but some say the measures don’t go far enough.
Jane Tully, director of external affairs at the Money Advice Trust, the charity that runs National Debtline, warned the proposals won’t be enough to protect struggling households from repossession.
She said: “The regulator could go further by requiring lenders to continue offering specific protections to customers impacted by the outbreak – including requiring firms to offer further targeted payment deferrals as ‘forbearance of last resort’ in some circumstances.”
Meanwhile, Richard Lane, StepChange’s debt charity director of external affairs, said: “We’re pleased to see the FCA telling firms that they should not rush to possession action for people whose mortgage problems have arisen due to Covid, and that firms should not take a ‘one size fits all’ approach.
“We’re also pleased to see the clarity with which the FCA sets out its expectation that people’s credit records should not be affected by having taken payment holidays if they resume their contractual payments and agree a mechanism for clearing arrears with their lender.
“However, we think there is still the risk of unintended consequences out of CRA reporting, both on mortgages and more generally.
“We would like to see more reassurance that the mechanisms agreed by lenders will be truly affordable, taking account of people’s wider financial commitments.”
And Sara Willcocks, head of external affairs at Turn2us, told The Sun: “Keeping roofs over people’s heads, whether they own or rent, must be a priority for the government.
“There needs to be more solutions put in place to give people increased security in the current climate.”
Meanwhile, Sarah Coles, personal finance analyst at Hargreaves Lansdown, added: “If you’ve been hoping to borrow your way through the crisis or hang onto some luxuries, now is the time to draw up a budget and make some difficult decisions.
“Even if you can only afford partial repayments, something is better than nothing.”
If you’ve done all the hard work and there’s still no way to pay the bills, Sarah Coles advises mortgage borrowers to contact Citizens Advice or StepChange to get free and impartial advice on your options.
Households can calculate how deferring payments will affect them by using MoneySuperMarket’s mortgage holiday calculator.
We explain how first-time buyers can get on the property ladder as ownership “gets harder”.
The Help to Buy scheme has also been extended by two months to help thousands buying new homes.