FCA looks to extend mortgage payment holiday by three months
City regulator throws financial lifeline to struggling households with offer of payment holiday extension or temporarily reduced terms.
Households struggling with mortgage repayments in the wake of coronavirus may benefit from a three-month payment holiday extension, thanks to a new Financial Conduct Authority (FCA) proposal.
More than 1.8 borrowers have taken up special-measure mortgage payment holidays since the end of March, and will be offered the option to extend once plans are passed.
Those that haven’t yet asked for a payment holiday will have their application window extended until October 31 – with the option to negotiate reduced payments with lenders also tabled.
The City regulator stressed the extension applies only to mortgages – not other credit products – but confirmed the ban on home repossession would continue to the end of October.
While welcoming the partial relief for many homeowners, Mark Gordon, director of money, comparethemarket.com reminded borrowers that a mortgage payment holiday is only a temporary “deferral” of payment which will still need to be made with interest.
Finding your best option
The FCA hopes its new proposal will offer respite for those hardest-hit mortgage holders, and is inviting feedback by 26 May before it finalises guidance.
The plans place greater onus on financial firms to work with customers to find the best options available, with the possibility of offering lower monthly payment terms until the worst of the impact subsides.
Mark Gordon says: “Mortgage payments are usually a household’s largest monthly outgoing, so today’s confirmation by the FCA of a mortgage payment holiday extension will be a relief for those whose financial situation has been hit hard by the coronavirus.
“Our Financial Confidence Tracker shows that one in five (20%) households are not confident that they will be able to keep on top of payments over the coming weeks – and this rises to 29% for families with kids living at home.
“While mortgage payment holidays are available for those who need it most, there are pitfalls that are important for people to consider. Despite the name, a mortgage payment holiday is only a deferral of payment. It will need to be repaid at a later date and interest will still accrue during this period.
“If you are unsure of what is the best option for you, getting in touch with your lender will help you make an informed decision and you can discuss whether alternative options could be better suited to you during this period.”
Further support available
Once proposals are confirmed, the FCA will still encourage customers who can afford to return to full repayments to do so, claiming this is always in their best interests.
At the end of a payment holiday, firms should contact their customers to find out if they can resume payments and if so, agree a plan on how the missed payments will be repaid. Firms are expected to engage with their customers and find out what they can repay and, for those who remain in temporary financial difficulty, offer further support.
Christopher Woolard, interim chief executive at the FCA, added: “Where consumers can afford to restart mortgage payments, it is in their best interests to do so. But where they can't, a range of further support will be available.”