New research from review site Smart Money People suggests that lenders should raise awareness of the option for borrowers to take a mortgage payment holiday if they are struggling to keep up with their repayments.
The suggestion was made by mortgage intermediaries as part of the company’s twice-yearly Mortgage Lender Benchmark which dissects the state of the mortgage industry according to the views of 650 brokers. The idea was expressed by brokers in response to questioning about what challenges they thought their clients would face in the next two years and consequently, what support brokers would like to see lenders offer.
The promotion, and therefore the awareness of mortgage payment holidays, has declined since the pandemic, when at its peak around one in six UK mortgages was on a payment deferral. Brokers believe that many borrowers may not realise that payment holidays are still an option if they are in financial difficulty, particularly as lenders have reverted to assessing each payment holiday on an individual basis, rather than taking a blanket approach as was more the case during the height of the pandemic.
Mortgage payment holidays, otherwise known as payment deferrals, became mainstream in March 2020 as a measure to give borrowers a temporary break from their mortgage commitments if they were struggling to pay. The initial period was three months with a cap of six.
Jacqueline Dewey, CEO of Smart Money People, said: “We know that mortgage holidays were hugely popular during the pandemic and brokers are suggesting that lenders could remind customers about this financial cushion again now, rather than waiting for them to get into arrears.”
Smart Money People warns that some lessons could be learned because although borrowers were given assurances by the government that their credit record would not be affected, some found it harder or more expensive to remortgage afterwards. The deferrals did not appear on credit reports but cautious lenders had, and may still have, concerns about future affordability.
The review site also believes that improved communication may help borrowers better understand the terms of the agreement and deter those who do not have any real need to reduce the pressures on their household finances: some borrowers reportedly used the deferred payments for home improvements and some buy to let landlords invested in new properties, neither of which were within the terms of their agreement with the lender.
Dewey said: “Brokers will be hearing firsthand from their clients about just how hard the cost of living is biting and can see that lenders have a great opportunity to help those for whom inflation is having the most impact. However, it would be crucial to ensure that support is targeted at those who really need it and not a handout to those who don’t.”
The Mortgage Lender Benchmark highlighted that brokers were keen to see lenders be creative and flexible in other ways too such as an increased tolerance for underpayments, a move to interest-only payments for a period, or extending the term of the mortgage to reduce payments, as all three options show that the borrower is still committed to their mortgage.
Dewey added: “As has been evidenced in the Conservative leadership race, even politicians in the same party are divided about how to tackle rising inflation and the cost of living crisis but while MPs procrastinate, real people are facing serious financial difficulties. Perhaps lenders don’t need to wait to be instructed by the government to make a difference to their struggling borrowers.
“Many brokers believe that the pandemic provided lenders with a whole framework of financial support options which could be deployed now to help those who are experiencing hardship.”