Mortgage payment holidays for borrowers struggling as a result of the coronavirus crisis is to be extended by three months under new proposals announced by the government today.
Ministers are also planning to extend the ban on repossessions until the end of October.
Over 1.8m payment holidays have been granted by lenders under the measures that were first announced in March and were due to come to an end in June.
The government says that where borrowers can afford to resume mortgage payments, it is in their best interest to do so, even if they cannot cover the full monthly amount.
All payment holidays must be agreed between borrowers and their lenders in advance of direct debits being reduced or stopped.
In its announcement today, the government emphasised that payment holidays should not have a negative impact on borrowers’ credit files.
However, experts have warned that taking a payment break may still hinder borrowers’ chances of getting credit in the future as lenders may take this into account when carrying out their own credit scoring and affordability checks.
The FCA has published new draft guidance today for lenders which sets out the expectations for firms and the options available to their customers.
It says that borrowers who have yet to apply for a payment holiday will be able to do so until October 31.
Lenders will also be expected to extend support for borrowers who have already asked for a payment holiday, but are still struggling.
This could be by extending the payment holiday or by offer other forms of forbearance.
The economic secretary to the Treasury John Glen says: “We’re doing everything we can to help people with their finances at this difficult time, and that includes making sure people get the support they need with their mortgages.
“That’s why we’re working with the banks and lenders to extend payment holidays if people need them.
“Everyone’s circumstances will be different, so when homeowners can pay some or all of their mortgage, they should work with their lender on a plan; but if they are still struggling, I want them to know that help is there.
FCA interim chief executive Christopher Woolard says: “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.”
The guidance is due to come into force after a short consultation period which runs until 5pm on May 26.
Lenders will be expected to contact their customers whose mortgage holidays are coming to an end.
AJ Bell personal finance analyst Laura Suter welcomes the extension but says: “It should be made much clearer to borrowers how much this mortgage holiday will cost them in the long run.
“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.
“Based on the average mortgage in the country UK banks were already set to make more than £800m more in additional interest by people taking a mortgage holiday and that will leap up now the period has been extended.”
Building Societies Association chief executive Robin Fieth says: “We welcome today’s announcements and the close collaboration between Treasury, lenders and regulators which has led to them.
“Looking ahead we would encourage those borrowers who are able to pay to do so, as this will be to their own longer-term benefit.
“However, borrowers can also be assured that there will be no cliff-edge moment as tailored support will be available for those who need it, whenever that may be.
“We are pleased that there will be no automatic blanket extension to existing payment holidays as we do not believe extending payment holidays will be in the best interests of most borrowers, although individual extensions remain an option which may be right for some.”