The Financial Conduct Authority has issued proposals to extend the window for mortgage borrowers whose finances are negatively affected by coronavirus to apply for a payment holiday to 31 October.
There is a clear expectation set out by the FCA to firms that those who continue to need help should continue to get help, after their initial three-month payment holiday ends.
Kate Davies, executive director of the Intermediary Mortgage Lenders Association (IMLA), said: “An extension of the mortgage payment deferral scheme is not an altogether surprising move by the Treasury. We are now approaching the end of the three-month window originally set out by the Government in March and the COVID-19 crisis is continuing to impact livelihoods across the country. As the industry tries to help some borrowers return from so-called payment holidays, it will also take time to reset their regular payments and discuss suitable and viable alternative options with them.
“This morning’s consultation paper from the FCA has extended the payment holiday window, but it has also recognised the importance of helping borrowers who can afford to make repayments to resume doing so as soon as possible.
“It is absolutely vital that borrowers understand that this scheme is for a payment deferral, not a cancellation. While it can provide a lifeline to some borrowers by helping with short-term cash-flow issues, the longer customers are on a ‘payment holiday’, the more interest will accrue on their mortgage – albeit at relatively small amounts as interest rates remain low. Those who are able to afford to resume their normal contractual payments should consider doing so as early as they can, as this will help to put them in a better position in the long term.
“Lenders are and will be making strenuous efforts to contact borrowers to discuss whether to commence or extend a deferral or their options for resuming repayments. It’s really important that borrowers respond to and engage with their lenders in this process to make sure that the right decisions are taken. Although the government’s scheme has been extended by another three months, this window will go by quickly.”
StepChange Debt Charity has welcomed the proposals but flagged up the situation that many tenants are finding themselves in with regards to being able to pay their rent.
Peter Tutton, StepChange’s head of policy, 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.”