FCA proposes extension to mortgage payment holiday
The Financial Conduct Authority (FCA) has announced proposals which will continue support for customers struggling to pay their mortgage due to coronavirus.
The plans outline how lenders should treat customers coming to the end of a payment holiday, as well as those who are yet to request one.
For customers yet to request a payment holiday, the time to apply for one would be extended until 31 October 2020.
For those who have already had a three-month payment break but are still having financial problems, the payment holiday could be extended by a further three months.
Chancellor Rishi Sunak announced on 17 March that mortgage lenders would provide customers with three months of payment holidays in a bid to support financial security amid the coronavirus pandemic.
It was reported earlier this week that Sunak was considering extending the scheme.
Christopher Woolard, interim chief executive at the FCA, says: “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.”
The FCA added that the payment break should not have a negative impact on borrowers’ credit files.
The regulator also said the current ban on repossession of homes would continue to 31 October 2020.
Laura Suter, personal finance analyst at investment platform AJ Bell, says: “The three-month extension of mortgage holidays will be welcome relief for those households struggling with a fall in income and uncertain job prospects during the current crisis. Already one in seven mortgage holders have taken a break on their mortgage, currently giving them a three-month period where they don’t have to make payments.
“However, it should be made much clearer to mortgage holders how much this mortgage holiday will cost them in the long run, particularly now it’s being extended until the end of October. While you don’t make the payment, you do still accrue the interest on the mortgage, which adds up over time. Interest rates being at record lows helps to reduce this cost, but if you’re on a higher mortgage interest rate, have a lot of borrowing or only have a short time until your mortgage term ends you could face a large hike in costs.”
The FCA is accepting comments on the proposals until 5pm on Tuesday 26 May and expects to finalise the guidance shortly afterwards.
The new guidance only applies to mortgages. The regulator said it would be updating guidance for other consumer credit products in due course.