Update on Mortgage Payment Holidays. How to apply, what proof is required and credit score impact.
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To allay customer fears please note guidance that the FCA has provided to all lenders:
- Grant customers a payment holiday for an initial period of 3 months, where they may experience payment difficulties as a result of coronavirus (Covid-19) and where they have indicated they wish to receive one.
- Ensure that there is no additional fee or charge (other than additional interest) as a result of the payment holiday.
The guidance also sets out the step’s firms should take to ensure that the payment holiday does not have a negative impact on the customer’s credit score. The FCA has also made it clear that in the current circumstances, it does not consider that repossession will be in the best interests of the customer. As a result, repossession should not be commenced or continued with unless the firm can demonstrate clearly that the customer has agreed it is in their best interest.
What is a payment holiday? What if I need a longer holiday after 3 months?
The essence of a payment holiday is that interest is added onto the loan and then the monthly repayment altered. The term of the mortgage could be altered as lenders will take a view based on customers affordability.
It could last longer than 3 months and might not have to be repaid immediately. The reasoning for this is if they have lost their job, etc. Further help can be provided so customers must NOT worry.
Some lenders will require you to call in but some like Santander allow customers to apply on line so customers need to check on their lender’s websites first.
What proof will customers need to provide? Are all customers eligible?
Under normal circumstances lenders would assess the customer’s financial situation and ask them to provide information so that they can consider what forbearance options may be the most suitable, however these are exceptional circumstance so generally it is their current situation that will be discussed re COVID-19. Lenders purely want customers to call them to discuss their situation. This measure covers retail mortgages (buy-to-let and residential).
Please note that if a customer is already in arrears they may not be eligible for a payment holiday, but there are other ways that lenders can support them so they still must get in contact.
Generally, lenders are seeking to ascertain are you sick with COVID-19 and now on SSP or have reduced hours working or lost their job, etc. If that is the case then a repayment holiday might apply.
How will this impact my credit score?
Where a payment holiday has been agreed with the customer in advance, this won’t lead to any arrears being reported to the credit reference agencies so this will not impact your credit score. However, if you haven’t come to an agreement with the lender and you miss a payment, this would be reported to the credit reference agencies in line with our normal process.