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Mortgage payment breaks are coming to an end

Maxine McCreadie
Maxine McCreadie

22nd October 2020

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Since March more than 1.9 million UK homeowners have taken advantage of payment breaks on mortgages and other second secured loans that were offered during the lockdown period.

However, as we approach October 31, guidance that is being provided by the UK’s Financial Conduct Authority (FCA) is changing and will make a significant difference for many who have been relying on payment breaks.

In addition to that, the FCA’s ban of repossessions will also come to an end, meaning the threat of people losing their homes will again re-emerge, especially for those who were experiencing problems before the lockdown began.

 

The Financial Conduct Authority’s three-phased approach

Over the crisis the FCA’s approach to mortgage payments can be broken down into three phases:

Phase one: In phase one, at the beginning of the lockdown, banks took a very liberal approach to offering payment breaks for up to three months. In essence, they were available to anyone that requested them.  The breaks themselves were only intended for people financially impacted by the crisis, but in reality very little policing of this was carried out.

In addition to that, the Financial Conduct Authority also instructed Banks not to report agreed breaks as missed payments to credit reference agencies, to minimise the impact it would have on people’s credit files.

Crucially, however, the FCA did not instruct mortgage providers to freeze interest and charges, so the amount owed for many people increased.

Phase two: In this stage, which began in June, the FCA extended their payment break guidance for another three months, but ended their blanket approach. Instead, they advised mortgage providers to take a customer-focused approach and asked them to contact customers to ask if they required further support.

The majority of people who previously had used the breaks in phase one were able to resume their payments again, although for those not able to, they were offered another 3 months support.

Again the FCA advised Banks not to report the payment breaks as missed payments to Credit Reference Agencies.

Phase three:  This is the latest stage and is aimed at those who required payment breaks in Phase Two, which will now be coming to an end.

In this stage, banks again are being told to contact their customers to ask if there is any further help they require.  This means offering further payment breaks or alternatively other types of assistance, such as interest-only payments.

Importantly, in this stage the FCA is advising banks to now report missed payment to credit reference agencies, meaning for those who cannot continue to make payments, it is likely to damage their Credit Scores.

 

What should you do if you cannot resume payments?

For those now entering phase three and who cannot resume payments, they should contact their mortgage providers and ask them what further assistance they can offer.

It is worth bearing in mind that for people who previously had a payment break, the type of problems they may now be experiencing might be the fact their mortgage provider is looking for increased payments to cover the arrears and not just their normal monthly payments.

The FCA has told banks they must continue to offer support to people and ensure any  support must be tailored to their customer’s needs. So if problems are short-term, they should consider offering further short-term support in the form of further payment breaks or reduced payments.

However, where problems are related to making increased payments, Banks should consider all the options open to them, such as allowing customers longer periods to pay off arrears or even adding them onto the end of the mortgage.

Where difficulties are going to be long term, they should refer customers onto agencies that can provide advice on people’s finances and what options they have.

 

The ending of the repossession ban

Although it unlikely lenders will move to repossession action, at this stage, for anyone who has just experienced difficulties during the lockdown period, there will be customers who were in arrears and experiencing problems before it.

Those homeowners may find the banks may begin or continue the process of repossessing their home after October 31.

When this occurs, lenders should alert customers to their intentions and direct them to agencies that can help them. They also have to begin the repossession procedure, in Scotland, by serving a Calling Up Notice, that gives two months’ notice to bring an account up to date. After that, they can then initiate legal action in the courts.

However, for many people who are struggling with multiple debts including council tax arrears, credit card debts and personal loans, sometimes receiving advice on how to manage these can free up the cash to allow mortgage payments to be prioritised each month.

 

Maxine McCreadie
Maxine McCreadie

Maxine is an experienced writer, specialising in personal insolvency. With a wealth of experience in the finance industry, she has written extensively on the subject of Individual Voluntary Arrangements, Protected Trust Deed's, and various other debt solutions.

How we reviewed this article:

HISTORY

Our debt experts continually monitor the personal finance and debt industry, and we update our articles when new information becomes available.

Current Version

October 22 2020

Written by
Maxine McCreadie

Edited by
Ben McCormack

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