Homeowners should not be offered further payments breaks if they are still struggling to pay their mortgage, the City watchdog has said.
Since the start of the coronavirus pandemic, customers with mortgages, credit cards or personal loans have been able to ask their bank for a three-month repayment break if their finances have been damaged because of Covid-19.
Millions of homeowners rushed to take advantage of these so-called “payment holidays”, with many subsequently taking a second break. This would mean borrowers had not repaid their debts for six months in total.
However the Financial Conduct Authority, the City regulator, has now warned that further holidays are “unlikely to be the appropriate solution” for borrowers.
It has proposed that banks support their customers in other ways, such as extending the term of the loan or allowing borrowers to resume payments but at a lower level than before.
So far, 1.8 million mortgage customers have asked for a payment break and more than 1.6 million credit card and loan deferrals have been requested.
At its peak, about one in every five mortgages in Britain went unpaid as borrowers said they could not afford the repayments. However, a report by Telegraph Money revealed that few homeowners had requested additional help once their initial payment break had ended.
Because of this market shift, the regulator has also suggested that banks should be allowed to note any further payment holidays on customers’ credit files. Since the emergency payment holiday rules were established, lenders have been blocked from leaving negative marks.
The FCA said the continued non-reporting of payment holidays could damage banks’ abilities to make lending decisions in future. However, negative marks could lead to customers being denied credit or charged interest higher rates in future.
The watchdog has urged caution about the way any changes are introduced, given that many payment holidays expire before October 31, when the Government’s furlough scheme closes.
There are concerns that homeowners and other borrowers could be hit with the double whammy of losing their jobs and then being denied further help from their bank.
A report published last week by the FCA warned that the number of vulnerable customers had risen sharply since March. The regulator said that some firms were exploiting customers for commercial gain, including those who were offered large personal loans when they had already declared themselves in financial difficulty.