It was recently announced by the Financial Conduct Authority (FCA) and HM Treasury that borrowers can take advantage of an additional four months mortgage holiday.
It’s a move that’s been welcomed by those who are struggling financially due to the impact of coronavirus. Originally, the scheme was set to run out at the end of June. Now it’s been extended until the end of October of this year.
However, the FCA does warn that borrowers should return to paying their mortgages if possible. They’ve provided guidance to lenders on different options they should make available to their customers.
“Our expectations are clear – anyone who continues to need help should get help from their lender. Where consumers can afford to re-start mortgage payments, it is in their best interests to do so,” said Christopher Woolard, Interim Chief Executive at the FCA.
FCA DRAFT GUIDANCE FOR LENDERS
FCA has drafted guidance in the wake of this extension, including the following:
- It’s in the best interest of customers who can afford to return to full repayment to do so at the end of their current payment holiday.
- Lenders should continue to support customers who have already had a payment holiday but need further help.
- Customers that have not yet had a payment holiday and are experiencing financial difficulties can now request one until the end of October this year.
- The current ban on repossessions of homes will also be extended to the end of October this year.
- Payment holidays and partial payment holidays shouldn’t negatively affect credit scores.
Lenders are asked to advise their customers on the most suitable option for their circumstances. This could be to return to full monthly payments; to pay a proportion of their monthly payment; temporarily switch to an interest-only mortgage; or extend their mortgage payment holiday.
Some borrowers who return to making full mortgage payments may be given the option to extend the term of their mortgage so that their new monthly payments are at the same level as before their mortgage holiday.
THE MORTGAGE HOLIDAY SCHEME HAS PROVED POPULAR
It’s been reported that around 1.8 million borrowers have taken up the option of a mortgage holiday. This has included landlords whose tenants are experiencing financial difficulties and can’t pay their rent.
Mortgage lender representative, UK Finance, reported that mortgage holidays have so far averaged approximately £755 a month for borrowers who took advantage of the option.
Salman Haqqi, personal finance expert at the Money website, gave a few words of warning to those considering taking a mortgage holiday: “The government’s initial launch of mortgage holidays brought welcome relief for homeowners who had their income affected by the COVID-19 crisis. The scheme, where payment could be deferred with zero negative impact to credit ratings, resulted in up to one in nine homeowners making use of the initiative. Should homeowners wish to look into a payment holiday on their mortgage, it’s important to remember that you will still owe the money and interest will continue to accrue while the deferred payments remain unpaid. This means that your monthly payments will likely go up slightly after the payment holiday ends.”
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