STRUGGLING homeowners who get help with mortgage repayments from November will have it marked on their credit score, the city watchdog has confirmed.
Mortgage customers have until October 31 to apply for a payment break if they are unable to keep up with the bills, without it affecting their credit history.
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The first three-month mortgage holiday was announced on March 17, and it was then extended by a further three months in May.
Payment breaks are usually recorded but when the coronavirus lockdown was announced, credit reporting agencies agreed that any borrower who took up a payment holiday wouldn’t see their credit score impacted.
Those that are recorded on credit files can affect future applications for borrowing, having an impact on how much interest you pay, how much you can borrow and your chances to remortgage.
So far, roughly two million mortgage borrowers have taken out payment holidays.
The Financial Conduct Authority (FCA) said that although the majority of customers will start to pay mortgages in full from November, many will remain in financial difficulty.
For example, the furlough scheme is due to end in October and a wave of mass redundancies is expected to follow suit.
The regulator has proposed that from November, lenders should offer tailored support to customers depending on their individual circumstances.
These includes repayment term extensions, which could see monthly payments reduced but you’ll be in debt for longer.
If households need more short-term support, lenders should offer to either pause or reduce payments for a specified period to give customers time to get back on track.
Under the guidance, firms are expected to prioritise helping borrowers who are at most risk of harm, or who face the greatest financial difficulties.
The support will help households who’ve suffered a drop in income due to the pandemic, and struggled to pay their mortgages.
But under the proposals, any extra help will now be reported to credit referencing agencies again following a freeze.
Back in May, MoneySavingExpert revealed that lenders can actually see whether you’ve paused any payments through Open Banking, meaning future mortgage applications may be rejected regardless of what your credit report says.
Repossession proceedings can also start again after October 31 – unless someone in the household is self-isolating or shielding – or if there’s a local or national lockdown, the FCA said.
Lenders must exhaust all other options before starting any action.
If you’re struggling to pay your mortgage, make sure to contact your lender as soon as possible and ask for help.
Christopher Woolard, interim chief executive at the FCA, said: “It is important that consumers who can afford to resume mortgage payments should do so.
“However, we understand that borrowers facing payment difficulties because of the pandemic will continue to face uncertainty and may also experience temporary interruptions in income.
“We are proposing that firms contact their borrowers in good time before the end of a payment holiday, and work with them to come up with a tailored plan to help get them back on track.
“Firms should not take a ‘one size fits all’ approach.”
While Eric Leenders, managing director of personal finance at trade body UK Finance, said the industry has provided “unprecedented support” to help Brits through the pandemic.
He added: “As we begin to arrive at a “new normal”, a more tailored approach to customer support using a range of measures will likely be more suitable for those customers who continue to experience financial difficulties or find themselves newly affected by the ongoing crisis.
“It is important for customers who are able to resume their mortgage payments do so, however lenders are fully prepared to support any customers who face difficulty and it is vital that those who are facing payment difficulties get in touch with their provider as soon as possible.”
Debt charities are pleased about the extra help proposed by the FCA, but some say the measures don’t go far enough.
Jane Tully, director of external affairs at the Money Advice Trust, the charity that runs National Debtline, warned the proposals won’t be enough to protect struggling households from repossession.
She said: “The regulator could go further by requiring lenders to continue offering specific protections to customers impacted by the outbreak – including requiring firms to offer further targeted payment deferrals as ‘forbearance of last resort’ in some circumstances.”
Meanwhile, Richard Lane, StepChange’s debt charity director of external affairs, said: “We’re pleased to see the FCA telling firms that they should not rush to possession action for people whose mortgage problems have arisen due to Covid, and that firms should not take a ‘one size fits all’ approach.
“We’re also pleased to see the clarity with which the FCA sets out its expectation that people’s credit records should not be affected by having taken payment holidays if they resume their contractual payments and agree a mechanism for clearing arrears with their lender.
“However, we think there is still the risk of unintended consequences out of CRA reporting, both on mortgages and more generally.
“We would like to see more reassurance that the mechanisms agreed by lenders will be truly affordable, taking account of people’s wider financial commitments.”
And Sara Willcocks, head of external affairs at Turn2us, told The Sun: “Keeping roofs over people’s heads, whether they own or rent, must be a priority for the government.
“There needs to be more solutions put in place to give people increased security in the current climate.”
Meanwhile, Sarah Coles, personal finance analyst at Hargreaves Lansdown, added: “If you’ve been hoping to borrow your way through the crisis or hang onto some luxuries, now is the time to draw up a budget and make some difficult decisions.
“Even if you can only afford partial repayments, something is better than nothing.”
If you’ve done all the hard work and there’s still no way to pay the bills, Sarah Coles advises mortgage borrowers to contact Citizens Advice or StepChange to get free and impartial advice on your options.
Households can calculate how deferring payments will affect them by using MoneySuperMarket’s mortgage holiday calculator.
We explain how first-time buyers can get on the property ladder as ownership “gets harder”.
The Help to Buy scheme has also been extended by two months to help thousands buying new homes.