FCA confirms extension of mortgage holidays

With England entering a second coronavirus lockdown on Thursday (5th November), the Financial Conduct Authority (FCA) has told mortgage, loan and credit card providers to offer borrowers extended repayment holidays.

Consumers who have not yet had a credit payment deferral for a mortgage can request one that lasts for up to six months, while those who have had a deferral will be able to apply for a second.

In September, the FCA announced tailored support for borrowers affected by coronavirus (Covid-19) after 31st October, which it would keep under review as the pandemic evolved.

The FCA is proposing to extend the availability of payment deferrals to support borrowers who are experiencing payment difficulties because of coronavirus.

This will mean that:

• those who have not yet had a payment deferral will be eligible for 2 payment deferrals of up to 6 months in total
• those who currently have an initial payment deferral, will be eligible for another payment deferral of up to 3 months
• those who have resumed repayments after an initial payment deferral will be eligible for another payment deferral of up to 3 months

The FCA is urging consumers not to contact their lender until the enhanced measures are in place. Lenders will soon provide further information. Under the FCA’s proposals, borrowers would have until 31st January 2021 to request a payment deferral.

A payment deferral under these proposals would not be reported as missed payments on a borrower’s credit file. This does not mean that consumers’ ability to access credit will be unaffected in future, as lenders may take into account a range of information when making lending decisions.

The FCA is also proposing that no one will have their home repossessed without their agreement until after 31 January 2021.

Some borrowers would not be eligible for a payment deferral, including because they:

• have already had 2 payment deferrals (of up to 6 months in total), and tailored support will be more appropriate to their circumstances
• have agreed alternative support with their lender

Tailored support may be reported on a borrower’s credit file, and lenders should inform borrowers where this will be the case.

Sheldon Mills, interim Executive Director of Strategy and Competition at the FCA said “We are working with lenders to ensure enhanced support remains available to borrowers struggling financially following changes in the coronavirus situation across the UK.”

‘Tailored support will still be offered and remains the most appropriate option for many borrowers, but we are proposing to extend payment deferrals for additional support. We also want to make sure no one has their home repossessed during this time.”

‘It is in borrowers’ own long-term interest only to take a payment deferral when absolutely necessary. Those that are able to keep paying, should do so. This allows support to be targeted to those most in need.”

‘We are also asking borrowers not to contact their lender yet, and instead wait for further updates, including from their lenders, soon.”

Responding to the announcement of the Financial Conduct Authority’s consultation announcement Eric Leenders, Managing Director of Personal Finance at UK Finance, said “Lenders are continuing to provide unprecedented levels of support to help customers through the Covid-19 crisis and have been working closely with the FCA to ensure that customers impacted by the new lockdown measures will be able to access the assistance they need, including being able to defer payments on their mortgages where this can help. While these arrangements are being put in place customers seeking to access this support do not need to contact their lenders yet. Lenders will provide information shortly on how to apply for this support.”

Robin Fieth, Chief Executive of the Building Societies Association (BSA), said “We recognise that the ongoing economic issues being caused by the Pandemic are generating significant challenges for some households. Hence the extension of this payment deferral scheme. For those with a mortgage the best advice will always be to continue to pay if you can, and to discuss any concerns early with your lender. For those who are having difficulties, a payment deferral for a total of 6 months followed by ongoing tailored support are available. Lenders are working hard to support their customers through this time.”

TotallyMoney CEO, Alastair Douglas, said “TotallyMoney welcomes the extended support for those who might be in financial difficulty due to coronavirus.”

“It’s important to remember to apply for a new payment holiday or to extend a current one only if you really need to. That’s because interest will still be added during the period, so choosing to reduce payments, rather than stop altogether, could be a better option.”

“Interest can build up quickly, especially if you’re not paying off the existing debt. For example, on the average household credit card balance of £2,241, the interest accrued at the average rate of 20.71% APR over a six-month period will be £221.14.”

“Those unable to keep up with repayments — or who need longer than the six months offered — should contact their lender to agree tailored support. Late payments and defaults will harm your credit score and remain on your credit file for six years, making it harder to get accepted for things like credit cards and mobile phone contracts in the future.”

“If you see any missed payments or defaults on your credit report, you can contact each credit bureau and add a notice of correction to your file. While this won’t remove the missed payments or defaults, it does give you a chance to explain any mitigating circumstances that may have led to them, such as coronavirus.”

“Lenders must then take this into account when you apply for credit, which could help you get accepted in future.’