Homeowners struggling to pay their mortgage due to Coronavirus will be able to extend their mortgage payment holiday for a further three months, or start making reduced payments, in proposals published by the Financial Conduct Authority (FCA).

The FCA has published new draft guidance today for lenders which will set out the expectations for firms and the options available to their customers. This includes extending the application period for a mortgage holiday until 31 October so customers that have not yet had a payment holiday and are experiencing financial difficulty will be able to request one. The current ban on repossessions of homes will be continued to the same date.

When the guidance comes into force, following a short consultation, lenders will be expected to contact their customers whose mortgage holiday is coming to an end. Some may be able to resume their full monthly payments, others may be able to pay a proportion of their monthly payment, or temporarily switch to an interest-only mortgage, and others will opt to extend their mortgage payment holiday.

Borrowers that resume with their mortgage payments will be given options on how best to do so, such as the opportunity to extend the term of their mortgage in order to leave their monthly payments at around the same level as they were prior to their mortgage holiday.

If the proposals are confirmed, the FCA would expect:

  • Customers who can afford to return to full repayment should do so in their best interests – at the end of a payment holiday, firms should contact their customers to find out if they can resume payments and if so, agree on a plan on how the missed payments will be repaid.
  • Anyone who continues to need help gets help – lenders should continue to support customers who have already had a payment holiday where they need further help. Firms are expected to engage with their customers and find out what they can re-pay and, for those who remain in temporary financial difficulty, offer further support. As part of this firms should consider a further three-month payment holiday.
  • Extending the time the scheme is available to people who may be impacted at a later date – customers that have not yet had a payment holiday and experiencing financial difficulty will be able to request one until 31 October 2020.
  • Keeping a roof over people’s head during a public health crisis – the current ban on repossessions of homes will be continued to 31 October 2020. This will ensure people are able to comply with the government’s policy to self-isolate if they need to.
  • Payment holidays and partial payment holidays offered under this guidance should not have a negative impact on credit files. However, consumers should remember that credit files aren’t the only source of information which lenders can use to assess creditworthiness.

This guidance would not prevent firms from providing more favourable forms of assistance to the customer, such as reducing or waiving interest.

Firms should consider signposting customers towards sources of debt advice. Debt advice may be helpful for customers coming to the end of payment holidays and may be particularly useful for consumers with pre-existing payment shortfalls or who are likely to be in longer-term financial difficulty.

When implementing this guidance, firms should be particularly aware of the needs of their vulnerable customers and consider how they engage with them. For customers who aren’t able to use online services (such as digital channels), firms should make it easy for customers to access alternatives.

The FCA welcomes comments on these proposals until 5pm on Tuesday 26th May and expects to finalise the guidance shortly afterwards.

This guidance only applies to mortgages. It does not apply to consumer credit products which are covered by separate guidance which will be updated in due course.

The availability of a three month mortgage holiday was first announced in March as part of an unprecedented package of support for individuals, businesses and the economy. Over 1.8 million mortgage payment holidays were taken up, and the first of these will be coming to an end in June.

Christopher Woolard, Interim Chief Executive at the FCA, 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 31st October.”

The Economic Secretary to the Treasury, John Glen said “We’re doing everything we can to help people with their finances at this difficult time, and that includes making sure people get the support they need with their mortgages. That’s why we’re working with the banks and lenders to extend payment holidays if people need them.”

“Everyone’s circumstances will be different, so when homeowners can pay some or all of their mortgage, they should work with their lender on a plan; but if they are still struggling, I want them to know that help is there.”

Robin Fieth, Chief Executive of the Building Societies Association (BSA) said “We welcome today’s announcements by the Economic Secretary to the Treasury and the FCA and the close collaboration between Treasury, lenders and regulators which has led to them.  Looking ahead we would encourage those borrowers who are able to pay to do so, as this will be to their own longer-term benefit.  However, borrowers can also be assured that there will be no cliff-edge moment as tailored support will be available for those who need it, whenever that may be. ”

“Mortgage payment holidays will continue to be available until 31 October for those who have not had one.  We are pleased that there will be no automatic blanket extension to existing payment holidays as we do not believe extending payment holidays will be in the best interests of most borrowers, although individual extensions remain an option which may be right for some. ”

“Possession is always a last resort for lenders and with the extension of the repossessions moratorium, homeowners should also be reassured that they are secure in their own homes.”

“Lenders will be contacting all borrowers with a repayment holiday before it comes to an end to lay out potential next steps and the support that is available.  Any borrower with concerns is encouraged to get in touch with their lender sooner rather than later.  Lenders will be working hard to provide support to all who need it as quickly as they can.”

Stephen Jones, CEO of UK Finance, said “Mortgage lenders are committed to providing those borrowers nearing the end of their three-month payment holiday with help and flexibility in choosing the next steps which best suit their needs. The industry looks forward to regulatory guidance being finalised swiftly to ensure both borrowers and lenders can plan over the coming weeks. Meanwhile, those borrowers who have already taken a mortgage payment holiday and can afford to make payments are encouraged to do so, as this will reduce the level of their repayments in the long run.”

“For those borrowers who have not already applied for a mortgage payment holiday, the industry supports the extension of the availability of payment holidays until 31 October 2020 as this will provide much-needed breathing space for borrowers who need it. Lenders are also committed to the moratorium on involuntary repossession to ensure no homeowner loses the roof over their head because of COVID-19 related repayment difficulties.”

“A payment holiday may not be the right choice for everyone, and borrowers should only apply if they need one. We would encourage any borrowers concerned about their financial situation to check with their lender, starting by looking at their website which will have the latest information on the support available.”

The Money Advice Trust has welcomed today’s decision to extend the support available to mortgage holders. The charity says that the move must be followed by support for private renters who are among the most exposed to financial difficulty in the wake of the outbreak. In its recent ‘Closing the gaps’ report, the charity called on the Government to increase the rate of Local Housing Allowance to cover 50% of average market rents to help people meet their rent payments during the outbreak, and increase funding for Discretionary Housing Payments distributed by local authorities, which give extra help to people facing a rent shortfall.

Joanna Elson OBE, Chief Executive of the Money Advice Trust, said “Today’s announcement that lenders should continue to support mortgage holders, including offering a further three-month payment holiday where needed, is welcome, and will give further reassurance to homeowners whose finances have been impacted by Covid-19.  It is essential that relief measures are withdrawn in a slow, cautious and co-ordinated way, and today’s news – along with the recent extension of the Job Retention Scheme – are encouraging signs that this is the approach the Government intends to take.”

“More help for people with mortgages must be followed, however, by action to support private renters.  People in private rented accommodation are among the most exposed to financial difficulty in the wake of the outbreak, and the Government should listen to calls to help people meet their rent payments by increasing the Local Housing Allowance rate to cover 50% of average market rents.”

“We also need to see increased funding for Discretionary Housing Payments – as the Scottish Government has put in place for renters in Scotland just this week – and an extension to eviction protections in England and Wales beyond the end of June.”

StepChange Head of Policy Peter Tutton said “Given that there will undoubtedly be people currently furloughed who are subsequently made redundant, it’s very clear that some mortgage holders who are going to need help perhaps don’t even realise it yet. This extension is therefore essential. At the same time, a further temporary extension also makes sense for others who are unable to get back to their normal financial situation as soon as they had hoped, but who will do before long. We strongly support firms signposting all negatively affected customers to debt advice: charities like StepChange can help people think through their whole financial situation, not just their mortgage.”

“The mortgage extension does beg the question about whether similar interventions will be forthcoming from the Government to protect tenants in a similar way. The FCA cites “keeping a roof over people’s heads during a public health crisis” as part of its rationale for intervention, and this applies as much in the rented sector as to the mortgage sector.”

Alastair Douglas, CEO of finance experts TotallyMoney, said “TotallyMoney welcomes the extended support for those who might be in financial difficulty and are struggling to repay their mortgage as a result of coronavirus.”

“Those worried about needing a payment holiday at a later date will be pleased to hear they can apply until 31st October. However, it’s important to understand that interest will still be added during a holiday, so choosing to reduce payments, rather than stop altogether, could be a better option.”

“If you need to apply for a payment holiday or would like to reduce payments, contact your lender as soon as possible. If you stop making payments without letting them know, it will count as a missed payment, which will harm your credit score.”

“For those already on a mortgage payment holiday, now is the time to assess whether you can restart your payments, or if you need apply for the extension. Whichever option you choose, it’s important to discuss your situation with your lender, to find the best solution for you. There are different options available depending on your circumstances.”

“Having the choice to extend a mortgage payment holiday is an attractive option for many. But, as with the initial payment holiday, interest is still added, which makes the overall debt and repayments more expensive. If you can, it’s best to start making repayments.

“Amid the coronavirus crisis, customers on a payment holiday should check their free credit score and report regularly to see if their payment holiday has been recorded properly. If it shows a missed payment, they should raise this with the lender to make sure it doesn’t happen again next month.”

Mark Gordon, Director of Money, comparethemarket.com said “Mortgage payments are usually a household’s largest monthly outgoing, so today’s confirmation by the FCA of a mortgage payment holiday extension will be a relief for those whose financial situation has been hit hard by the coronavirus. Our Financial Confidence Tracker shows that one in five (20%) households are not confident that they will be able to keep on top of payments over the coming weeks – and this rises to 29% for families with kids living at home.”

“While mortgage payment holidays are available for those who need it most, there are pitfalls that are important for people to consider. Despite the name, a mortgage payment holiday is only a deferral of payment. It will need to be repaid at a later date and interest will still accrue during this period. If you are unsure of what is the best option for you, getting in touch with your lender will help you make an informed decision and you can discuss whether alternative options could be better suited to you during this period.”

Gareth Shaw, Head of Money at Which?, said “The extension of these measures will bring relief to people who would otherwise struggle financially during the challenging months ahead.”

“Mortgage lenders should make the process as straightforward as possible, ensuring people can easily access the support they need.”

“Consumers should also consider their options carefully as a mortgage payment holiday will likely lead to increased payments in the future – so it is likely to be in their interest to continue making payments as normal if that is feasible.”

Richard Pike, Phoebus Software Sales and Marketing Director said “The payment holiday programme has been hugely successful in providing some respite to borrowers that are currently experiencing financial uncertainty.”

“The extension will be welcomed by borrowers, but the industry will need to manage another wave of borrower communication at a time when many lenders will have been working on recalculating borrower accounts.  Whilst also communicating new repayments from the initial 3-month holiday period.”

“A reduction in receivables for any lender is always an issue, but en-mass for a sustained period, could be a challenge for some, particularly those with securitised assets. Whatever the Government’s intentions, it could be that lenders will take a more detailed look at some borrowers applying for this new initiative.  They will need to ensure that only borrowers that genuinely require them are accepted for the scheme, or that other risks such as LTV are considered more closely”.