The extension of mortgage payment holidays for a further three months has been widely discussed in the market, even prior to its confirmation earlier today.
For many commentators, this news is to be met with cautious positivity.
Taking part in a Mortgage Introducer webinar this month, and in response to questions about unconfirmed reports that the Financial Conduct Authority (FCA) was considering an extension, Alan Cleary, group managing director, mortgages, at OneSavings Bank stated that the industry would be supportive of measures to help avoid customers going into arrears.
Cleary said: “We need to support customers, and if the original three months isn’t long enough to get people out of furlough back into work then we’re going to be as supportive as we can.”
However, a number of commentators have counselled caution, with SPF Private Clients, for example, warning that ‘holiday’ is a misleading term for consumers, some of whom might, without the right guidance, access this support when it is not their best option.
Nevertheless, for those that have taken it up, 90% have so far found the support helpful, according to research by the Building Societies Association (BSA).
In reaction to today’s confirmation of the extension of mortgage payment holidays for a further three months, James Jones, head of consumer affairs at Experian, said: “This will provide welcome relief to many homeowners.
“We know the financial impact of the coronavirus pandemic is a daily worry for many of us – particularly where regular income has been affected.
“Extending the mortgage payment holiday scheme will give people who are finding it difficult to make payments some very welcome certainty and comfort.”
He added: “We are committed to helping people safeguard their finances and credit scores at this challenging time.
“In response to these extraordinary circumstances, a new agreement by Experian, the other credit reference agencies and lenders is helping make sure people’s credit scores are protected where payment holidays are agreed.”
Richard Pike, sales and marketing director at Phoebus Software, said that the news of the extension will be welcomed, but should prompt a concerted communication effort from lenders.
He said: “The payment holiday programme has been hugely successful in providing some respite to borrowers that are currently experiencing financial uncertainty.
“The extension will be welcomed by borrowers, but the industry will need to manage another wave of borrower communication at a time when many lenders will have been working on recalculating borrower accounts.
“Whilst also communicating new repayments from the initial three-month holiday period.
Pike also warned about the effects this extension might have on the lender industry.
He said: “A reduction in receivables for any lender is always an issue, but en-mass for a sustained period, could be a challenge for some, particularly those with securitised assets.
“Whatever the government’s intentions, it could be that lenders will take a more detailed look at some borrowers applying for this new initiative.
“They will need to ensure that only borrowers that genuinely require them are accepted for the scheme, or that other risks such as LTV are considered more closely.”
At Lloyds, work has already commenced to communicate with customers about next steps following the extension of mortgage holidays.
Vim Maru, retail director at Lloyds Banking Group, said: “We have helped more than one million of our customers with repayment holidays, including over 400,000 for mortgages.
“We support the FCA and government in providing guidance on this topic to ensure that customers are treated consistently.
“We are already proactively contacting our customers who will be reaching the end of their repayment holidays to support them in restarting their payments.
“For those who may continue to be financially impacted, we will offer a range of support based on their current financial circumstances.”
Miles Robinson, head of mortgages at online mortgage broker Trussle, also voiced concerns about the long-term impact of the extension of holidays on borrowers.
He said: “It’s clear that mortgage payment holidays have proved a vital lifeline for those homeowners who are suffering financially as a result of the coronavirus pandemic.
“However, it’s not yet apparent what the long term impact of the government scheme will have on both borrowers and the market.
“If you’ve taken a mortgage payment holiday, it’s important to note that once the mortgage payment holiday is up, your monthly payments will increase slightly.
“This is because the additional interest is added to the total mortgage balance.
“The longer you depend on this scheme the larger your mortgage will eventually become.
“We’ve already seen a shift towards longer term mortgage applications to make monthly payments more affordable.
“When comparing the first four months of 2019 and 2020, we saw completions for 30 and 35 year mortgage term applications increase by 62% and 82% respectively.
“Additionally, extra checks are coming into play for those applying for a mortgage. For example, lenders might check whether you’ve been furloughed, or if you work in an industry that’s been highly impacted by coronavirus, such as hospitality or tourism.”
He added: “It’s definitely worth considering whether taking a mortgage payment holiday is a necessity or if taking an alternative route, such as remortgaging, could be more beneficial in the long run.
“We’ve found that our customers save £334 on average per month by remortgaging onto a fixed rate, so it’s worth using a remortgage calculator to see if switching could save you money.”