Homeowners struggling to pay their mortgage can now ask their bank for a further three month payment holiday.
The Treasury and the City watchdog, the Financial Conduct Authority (FCA), announced in March that all mortgage borrowers could ask for a three month payment break if they were struggling with the financial impact of coronavirus.
More than 1.8 million homeowners have since asked for a payment holiday and these borrowers will be able to extend this by up to three further months under new measures announced today. Those who have not yet taken a mortgage holiday will be able to apply for one until October 31.
However, homeowners will be contacted by their bank to encourage them to restart payments if they are able to afford it. Customers will be also offered the chance to make partial payments.
There are warnings that taking an extended break from mortgage repayments could have negative consequences for consumers in the long run, and there is a growing concern about the way homeowners could become reliant on mortgage holidays.
When a customer takes a payment break, interest continues to accrue on the loan, meaning that the homeowner will pay back more in the long run.
A report by Telegraph Money showed that taking a three month payment holiday could cost homeowners £2,000 over their mortgage term.
Banks have agreed that payment holidays will not have a negative impact on customers’ credit files. However, the FCA has warned consumers that credit files are only one tool used to determine a customer is creditworthy. Repeatedly being unable to make payments could lead to banks turning down future applications.
As part of its efforts to ensure that no citizens are made homeless during the crisis, the current ban on repossessions of homes has been extended to October 31.
John Glen, the Economic Secretary to the Treasury, said: “We’re doing everything we can to help people with their finances at this difficult time, and that includes making sure people get the support they need with their mortgages. That’s why we’re working with the banks and lenders to extend payment holidays if people need them.
“Everyone’s circumstances will be different, so when homeowners can pay some or all of their mortgage, they should work with their lender on a plan; but if they are still struggling, I want them to know that help is there.”