Plans announced to extend mortgage payment holidays

Homeowners struggling to pay their mortgage due to coronavirus will be able to extend their mortgage payment holiday for a further three months, according to new FCA proposals.

For people still experiencing temporary payment difficulties as a result of the COVID-19 pandemic, the regulator suggested that firms should continue to offer support, which could include extending a payment holiday by a further three months, or the ability to start making reduced payments.

The FCA’s plan also outlines that for customers yet to request a payment holiday, the time to apply for one would be extended until 31 October 2020.

FCA interim chief executive, Christopher Woolard, 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 mortgage payment holiday, will also continue to be able to apply until 31 October.”

The FCA also stated that lenders will be expected to continue supporting customers who have already had a payment holiday where they need further help, and engage with their customers to find out what they can re-pay, as well as offer further support for those who remain in temporary financial difficulty.

The regulator added that it would be welcoming comments on the proposals until 5pm on Tuesday 26 May, before finalising the guidance shortly afterwards.

Commenting on the FCA’s announcement, AJ Bell personal finance analyst, Laura Suter, said: “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.

“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.

“While the break in payments will be a lifeline for some people, they should research all the options first, including extending their term to reduce monthly payments, seeing if they can switch to a lower rate or switching to interest-only for a period.”

Hargreaves Lansdown personal finance analyst, Sarah Coles, also suggested an extension would be a “relief” for borrowers, but warned it is not a “get out of jail free card”.

“The FCA highlighted that while your official credit record can’t be affected by these breaks, this isn’t the only way firms decide whether to lend to you” she commented. “If you apply for loans in future, you may be asked whether you took advantage of the scheme – and how long for. So it could still affect your ability to borrow.

“If you extend your mortgage term by anything up to six months, you also need to consider the impact at the other end of the mortgage term. This could mean you have to pay your mortgage even after you’ve retired, or wait an extra six months to stop work. Alternatively, it could mean your mortgage remains a burden at a time of life when you hoped to prioritise other things – like your pension.

“It means it’s vital to weigh up your budget before you decide whether or not to take another break. If there’s any other way to cut costs and pay at least some of your mortgage each month, it will make it far easier to get back on track later.”

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