Mortgage holidays could impact future borrowing, brokers fear

Mortgage holidays could impact future borrowing, brokers fear

 

One in six borrowers have deferred home loan repayments during the coronavirus outbreak which has hit the income of millions of households.

Mortgage breaks can now be extended for a further three months, under plans from the government and regulators today.

Credit reference agencies are not recording holidays on reports, so pausing repayments will not damage files or history.

However, lenders can still see if someone has taken a break as their mortgage account balance will have remained the same or increased over a period of time.

Mortgage brokers have said lenders are also now directly asking whether a borrower has taken a mortgage holiday.

In a statement outlining guidance on the mortgage holiday extension, the Financial Conduct Authority (FCA) warned: “Payment holidays and partial payment holidays offered under this guidance should not have a negative impact on credit files.

“However, consumers should remember that credit files aren’t the only source of information which lenders can use to assess creditworthiness.”

Borrowers who can afford to restart mortgage repayments have been urged to do so, by the regulator and the government.

 

Concerns over future borrowing

Brokers are voicing worries that banks and building societies could take breaks into account when assessing future borrowing.

It comes as some homeowners are thought to have applied for holidays, even if their income has not been affected, instead seeing an opportunity to generate extra cash in the current climate.

Howard Reuben, principal at HD Consultants, said: “The UK has now seen over 1.8m borrowers implement a mortgage payment holiday – and I would suggest that many of them didn’t need it in the first place.

“All ‘holidaymakers’ may very well soon find it hard to secure best rates again for the short term, because lenders will profile them as distressed borrowers who had to go cap in hand to the bank after just a few weeks to get their payments deferred due to financial hardship.

“Maybe they don’t realise that this is how they will be seen, but we have already seen further advance, remortgage and purchase applications declined because the borrowers internal profile held by the bank is now less than perfect.

“Mortgage application forms are now asking if a payment holiday has been taken, and of course whether the applicant answers correctly or otherwise, gaps in their payment history on the bank statements will confirm the situation anyway.”

 

Do not penalise

Estate agency Chestertons and its recommended broker Springtide Capital previously warned borrowers should only take a repayment holiday as a “last resort”.

In a statement today, UK Finance chief executive Stephen Jones said: “A payment holiday may not be the right choice for everyone, and borrowers should only apply if they need one.”

It would not seem in keeping with the intent or spirit of the mortgage holiday if lenders were to refuse deals based on a payment break.

However, all lenders will have their own methods of assessing affordability, suggesting some could factor holidays in, while others do not.

James McGregor, Mesa Financial, said: “Most lenders have agreed not to penalise clients for taking the mortgage payment holidays and we hope this is honoured.

“Although if you are trying to remortgage in the middle of a mortgage payment holiday and your income has been affected, then naturally there will be further assessment by lenders as to what is happening.

“This is completely feasible and I do not see a reason why any lender would want to take on the new mortgage when there is income disruption.”