A little bit of news announced last Friday, that passed me by was the fact that the Government’s financial services regulator, the FCA announced an extension to the mortgage holiday for those people who have been financially impacted by Coronavirus – which by my reckoning, is everyone.
While reiterating customer should keep up with their mortgage payments if they’re able to do so, the FCA confirmed last week that:
Those who have not yet had a payment deferral will be eligible for payment deferrals of six months in total – so that means if you’ve been able to make your mortgage payments so far and haven’t had to ask for a holiday, you haven’t missed the boat, you can still do so for a total of 6 months. This probably relates to those people who were furloughed but have since lost their job completely or are now struggling financially or don’t yet know when they’ll be back in work and on a more stable financial footing.
Those who currently have a payment deferral will be eligible to top up to six months in total – So if you’ve started to defer your payments, then you can continue to do so for a maximum of 6 months.
Those who have previously had payment deferrals of less than six months will be able to top up, as long as total deferrals don’t exceed six months. This includes those receiving tailored support and those who are behind on payments.
Borrowers who have already had six months of payment deferrals will not be eligible for a further payment deferral. Firms will provide tailored support appropriate to their circumstances. This may include the option to defer further payments. – So if you hit the panic button back in the spring when we entered lockdown #1, you will most likely have used up your 6 months of deferral and will not be able to have a payment holiday any longer.
Which is pretty bad news for those people who have either lost their income entirely since Covid hit or are just about getting by, hanging on for things to improve.
What’s important to note here as that whilst this initiative was first called a ‘Mortgage Holiday’, in reality it’s nothing of the sort. You are simply asking your mortgage provider to postpone (defer) your monthly mortgage payments, but you DO still have to pay this money!
What isn’t always understood by customers is that the monthly amounts that you aren’t paying are merely added to the loan amount – so if you previously had a £200,000 mortgage and your monthly payments were £500 and you defer them for 6 months, the £3000 not paid just gets added to the £200,000 previously borrowed. And here’s the rub…you will be paying interest on that extra £3000, so over the term of your mortgage, you will have to pay more than this amount back to the mortgage provider.
As Sheldon Mills, the interim Executive Director of Strategy and Competition at the FCA, commented on the new announcement: “… we have confirmed further support for borrowers struggling financially as a result of coronavirus. The announcement we have made, ensures that the support offered through payment deferrals is as flexible and accessible as possible. This means borrowers will again be able to access payment deferrals up to a maximum of six months.”
But then the tell tale comment:
“However, if you are able to keep paying it will be in your best long-term interest to do so. Payment deferrals should only be taken when absolutely necessary.”
That’s because whilst payment deferrals under the new proposals will not be reported as a missed payment on a credit file, the FCA warn that this does not mean that consumers’ ability to access credit will be unaffected in future. In other words, mortgage companies and anyone assessing future customers for their credit-worthiness may ask if they took advantage of the opportunity to defer their mortgage during this time – and if so, could make a judgement about their potential risk.
Which is basically rubbish isn’t it?
The extension caught the eye of Peter Tutton, the Head of Policy at StepChange and whilst on the whole, he welcomes the extension, also urged affected consumers to embrace a certain amount of caution: “We strongly echo the FCA’s recommendation that consumers should keep up with payments on their mortgage if they can afford to do so and should only seek support where such support is absolutely necessary.”
“Our main concerns are for those whose payment deferrals have come to an end and are unable to resume repayments, as their only option will be whatever their lender offers. Some people may feel under pressure to resume payments due to concerns about negative credit reporting and use credit to do so, which could lead to more serious problems later down the line.
So… in other words people may feel the need to pay their mortgage (good credit*) with higher interest credit cards or personal loans, which will mean they’ll end up in a worse situation with interest payments adding up.
There’s no easy answer but I echo Peter’s comments that there is a need for Government to consider how the underlying mortgage safety net can be strengthened, given the long tail of payment problems likely to arise from unemployment.
We’ll watch this space.
*Understanding the difference between ‘Good Credit’ and Bad Credit is taught with the property training programme I have developed with Asset Academy. For more information, go to www.martinrobertspropertyeducation.com