Homeowners on payment holidays at risk from accidental defaults – News

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This article has been updated

Homeowners who want to take up their lender’s offer of a “mortgage holiday” during the pandemic are still being asked to pay because banks are struggling to approve the payment holidays quickly enough.

Those who miss a mortgage payment because a break has not yet been confirmed by the lender could be marked as going into arrears. This could affect their credit score and result in extra interest being charged.

Banks, insurers and others have introduced payment holidays to help those who have lost their jobs or been furloughed because of coronavirus.

Helen Collett, an NHS worker, was told she had missed a mortgage repayment even though she had applied for a three-month holiday from her bank, Barclays. She had just bought a new home but was unable to sell her old one. Ms Collett applied for a break from paying her previous mortgage on March 29 but was told it would take seven to 10 days to process, leaving her at risk of defaulting on her next payment, due on April 1.

“It took more than three hours on the phone to sort things out but finally I got verbal confirmation that the holiday would go through in time and I should cancel my direct debit for April,” Ms Collett, 33, said. However, on April 2 she received a message to say she had defaulted on a payment.

Barclays then told her the mortgage holiday was not due to start until May, despite the earlier confirmation on the phone that it would begin in April. “It took another few hours to get things resolved but eventually the start date was changed and my credit rating shouldn’t be affected,” she said. “It was incredibly stressful to think I’d got into debt and I had to use up my annual leave days waiting around on the phone to speak to someone.”

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Taking an approved mortgage holiday should not affect your credit score. However, the Financial Conduct Authority, the regulator, has confirmed that banks could take a holiday into account when they decide whether to offer a mortgage in future.

Borrowers should ensure they get everything in writing, said Paula Higgins of the Homeowners Alliance, an advice firm. “If you have official confirmation and are still penalised for missing a payment, go to the Financial Ombudsman,” she added.

One in seven mortgage holders is on a break from payments, according to UK Finance, a trade body. More than a million are still waiting for their application to be approved, Credit Karma UK, a credit report provider, said. Some have been waiting for a month, leaving them at risk of default.

Akansha Nath of Credit Karma warned homeowners against cancelling payments before they had official confirmation. “If you haven’t got it and are worried you’ll miss a payment, speak to your lender as soon as possible, as defaulting will affect your credit score,” she said.

“I was refused a mortgage holiday because I once paid too early”

Other homeowners have found that when they are able to get through to their mortgage provider they are unfairly refused a holiday.

One was told she was not eligible because she had made one of her recent repayments a day too early. Her bank said that to qualify she must have been paying her mortgage regularly each of the past nine months. Because she was recorded as having made two payments in one month and none the next she was refused the mortgage holiday. Eventually the bank relented but she was advised not to pay early in the future.

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A Barclays spokesman said: “We acknowledge the call wait time Ms Collett experienced was exceptionally long and apologise for this. Our mortgage team was receiving an incredibly high number of calls at the time and has taken steps to drastically reduce call wait times.”

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