Britain’s banks have revealed how they are going to implement Rishi Sunak’s promise of “payment holidays” of up to three months.
In guidance issued after the chancellor pledged mortgage support for households affected by the coronavirus, UK Finance, the trade body for the major banks, set out how households can apply.
There will be a fast-track system for approval, but not everyone will be granted a payment holiday. The unpaid interest will still be recovered later, but individual credit ratings will not be affected.
“Firms will help customers the best way for the individual, but an automatic payment holiday may not always be the most suitable approach and may not be required by all customers,” said UK Finance.
The holidays will not constitute free money. The banks said they remain obliged under Financial Conduct Authority rules to ensure that any “forbearance” will still assume an eventual full repayment of arrears.
While a person is taking a payment holiday, the interest that would have been paid will still rack up, and the capital sum of the loan remains.
But repossessions are extremely unlikely if someone fails to pay. “Forbearance needs to minimise the risk of possession,” said the banks. Advertisement
The banks admit the payment holidays are not a long-term solution but are designed only for a temporary income shortfall.
“This is not a solution where, because of a permanent reduction in income, a borrower is unable to afford anywhere near the full mortgage repayments and there is little prospect of an improvement in the situation in the foreseeable future,” said UK Finance.
Some borrowers who have already approached the banks for a payment holiday have been warned that, in effect, their credit score will be shredded. The banks have allayed these fears, saying: “Forbearance offered under these circumstances will not result in an adverse impact on the customer’s credit score.”
There is little comfort for landlords with buy-to-let loans. The scheme does not appear to extend to them, and they are being told simply to contact their bank if they are running into problems paying the mortgage.
Advisers said more detail was needed. Sam Harhat, of Andrews Property Group, said: “The government’s backing of mortgage holidays of up to three months for struggling households is clearly welcome but, as ever, the devil is in the detail.
“If this is a smooth and seamless process that will enable homeowners to self-isolate without having to worry about their mortgage payments then clearly it is a significant move in the right direction.
“The elephant in the room, of course, is how the government will be helping the huge numbers of tenants who may also struggle with their rental payments. For homeowners, the government made all the right noises in Tuesday’s media conference but for tenants we need considerably more clarity.”
Households hit by coronavirus will not lose credit ratings if they delay payments