Mortgage lenders pledge no more repossessions until April
They also called on government to reduce the time that borrowers must wait for a Support for Mortgage Interest loan from the current 39 weeks to 13 weeks.
In a joint statement, UK Finance and the Building Societies Association (BSA) supported the regulator’s approach which will mean the measures have been in place for a full year.
The extension would still apply to both residential and buy-to-let mortgages and follows the extension of the moratorium on private tenant evictions in England until 21 February 2021.
Wales and Scotland have banned rental evictions until 31 March 2021.
“The extension will help provide reassurance to both residential and buy-to-let borrowers that they will not have their homes repossessed at this difficult time,” the trade bodies said.
“Under the extension, members of UK Finance and the Building Societies Association will agree not to seek, or enforce, a warrant for possession before 1 April 2021, unless there are exceptional circumstances such as a customer requesting proceedings to continue or when the property is in vacant measures.”
Lenders will contact customers already in arrears before Covid-19 and who continue to be unable to make payments to work towards resolving their case.
The statement noted this could include customers choosing to go ahead with possessions.
“It will always be in the long-term interest of customers who are able to do so to resume making payments, but for anyone who is still struggling, ongoing support will be available,” the lenders added.
UK Finance managing director of personal finance Eric Leenders said the industry was committed to providing ongoing support to those facing financial difficulty as a result of the pandemic.
“The industry is fully supportive of a moratorium on possessions remaining in place until 1 April 2021 to ensure customers do not lose their home at this difficult time,” he said.
“This is part of a package of support provided by lenders for those who need it, including payment deferrals and tailored assistance.
“It is vital that customers who are concerned about their finances go online or contact their lender to understand what options and support are available to them.”
BSA head of mortgage and housing policy Paul Broadhead added: “Mortgage lenders recognise the unique circumstances which are affecting some borrowers during the pandemic, a situation which can only be exacerbated by the current lockdown and the need for some businesses to temporarily close.”
Debt advice needed
Debt support charity Step Change also welcomed the further extension on property repossessions but called for the regulator to strengthen the requirement on firms to refer people to holistic debt advice services.
Step Change head of policy Peter Tutton said: “We called last week for mortgage repossessions to be halted until after the pandemic lockdown has ended, so we’re pleased to see today’s proposal from the FCA to implement this until April.
“However, we’re concerned about the potential impact of the FCA’s proposal to allow repossession of goods and vehicles in some circumstances after 31 January – customers affected tend to be more vulnerable and some creditors have historically pursued repossession prematurely, which may not square entirely with the FCA urging firms to treat this as a last resort.
“It’s vital that the FCA not only sets out strong protections, but also monitors the response of creditors and uses its supervision powers to enforce the guidance. For people experiencing debt during the pandemic, the consequences may create real and ongoing hardship even after the public health crisis ends.”
Lenders hit back at prime minister over cladding blame
In their response, the lenders highlight they are reacting to government changes to building assessment rules which brought tens of thousands more buildings under the scope of EWS1.
They also noted that the limited number of surveyors qualified to do such assessments, believed to be around just 300, has further exaggerated the problem, although government funding has been confirmed in the last week to hopefully train 2,000 by the middle of 2021.
1,000 EWS1 forms completed
A joint statement from UK Finance and the Building Societies Association (BSA) said: “The EWS1 form was created to give industry-wide consistency to the information about potentially value-affecting works that building owners needed to provide for a mortgage valuation on properties of 18m and above.
“In January, MHCLG’s advice note for owners of multi-storey, multi-occupied buildings was updated making it clear that all buildings should include an assessment of cladding as part of their Fire Risk Assessment.
“This guidance has made it more challenging for lenders to take a pragmatic and risk-based approach as it brought multi-storey, multi-occupied buildings of any height into scope for the EWS1 which, as the only process acceptable to lenders for such checks, has led to it being requested for a far wider range of properties increasing the number of buildings from circa 1,700 to tens of thousands.
“With the limited number of suitably qualified and insured individuals currently available to conduct checks for this substantially increased number of properties, resourcing issues have inevitably followed.
“Despite this, over 1,000 EWS forms have been completed and more are being added every week. The industry continues to work with government and the Royal Institution of Chartered Surveyors (RICS) on developing an appropriate safety solution for those affected customers,” it added.
Speaking at Prime Minister’s Questions earlier this week, Johnson claimed lenders should realise EWS1 forms “are not necessary for buildings under 18m and it’s absolutely vital they understand that”.
However, that contradicts the Ministry of Housing Communities and Local Government (MHCLG) which has just agreed that only those buildings without cladding do not need the EWS1 form.
Mortgage payment holiday window extended for six months
This means borrowers who have not yet taken a payment holiday but find themselves needing to do so, will be able to for up to six months.
And those who have taken one three-month holiday will be able to take a further one.
However, borrowers who have already used a full six-month payment holiday must seek support from their lender.
Customers are being urged not to contact their lenders yet.
Banks and building societies have already agreed the move with the regulator and the FCA said it was working with trade bodies and lenders on how to implement this as quickly as possible.
The regulator will be publishing a consultation on the updated guidance today which will clarify the details further.
Make payments if you can
Its announcement came alongside the prime minister’s confirmation of a further lockdown for England starting on 5 November running until at least 2 December.
“It is important that mortgage borrowers who can afford to do so continue to make repayments. Borrowers should only take up this support if they need it,” the FCA said.
It added: “Lenders will provide information soon on what this means for their customers and how to apply for this support.
“It may also be in the interests of mortgage borrowers who expect to have long-term financial difficulties to agree other forms of tailored support with their lender.”
Trade bodies UK Finance and the Building Societies Association (BSA) echoed their support for the measures.
UK Finance managing director of personal finance Eric Leenders said: “Lenders are providing unprecedented levels of support to help customers through the Covid-19 crisis and stand ready to deliver ongoing assistance to those in need.
“The industry is working closely with the FCA to ensure customers impacted by the new lockdown measures will be able to access the most appropriate support.
“Customers seeking to access this support do not need to contact their lenders yet. Lenders will provide information after 2 November on how to apply for this support.”
BSA chief executive Robin Fieth added: “Building societies and credit unions recognise the financial pressures on some households and will continue to work hard to support customers in the coming months, working closely with the FCA.”
Mark Harris, chief executive of SPF Private Clients said it was good to see such decisive action taken so quickly.
“Many borrowers will be worrying about paying their mortgage and extending payment deferrals for a further six months will provide them with some comfort.
“However, the advice remains the same – only ask for a payment deferral if you need one.
“Interest will still rack up and you will have more to pay off in the long run so the option should only be utilised by those who really need it.”
Job insecurity overtakes raising a deposit as barrier to home ownership – BSA
This is up from March, where 35 per cent of buyers named job insecurity as a hindrance to owning a home and 65 per cent mentioned deposit.
According to the latest Property Tracker survey of 2,007 adults conducted by the Building Society Association (BSA), 40 per cent of buyers listed raising a deposit as their primary concern while 31 per cent cited future drops in house prices.
Although the lockdown had a huge impact on the housing market, the proportion of people overall who feel it is a good time to buy a property has remained stable. In June, a quarter of respondents said now was a good time to purchase, a marginal decrease on the 26 per cent who said so in March.
However, 34 per cent of buyers feel now is not the right time to buy a house, up from 23 per cent in March.
The survey also showed that 45 per cent of respondents believe house prices will fall in the next 12 months, compared to 16 per cent who predict they will increase.
Some 34 per cent of buyers have continued with their house buying process or plan to do so in the next month. Furthermore, 29 per cent of sellers either kept their property listed during the lockdown or plan to relist over the next month.
Just five per cent of sellers have not put their property on the market because of the pandemic and 11 per cent of buyers have put a pause on house hunting for the next two years.
Buyers need to feel more confident with the transaction process as nine in 10 buyers said they felt uncomfortable relying completely on virtual or third party viewings.
Some 36 per cent said evidence that properties could be viewed in a safe manner would give them more confidence in the housing market, while 28 per cent cited a complete lifting of lockdown measures.
Others were thinking on a more individualistic level as 35 per cent said increased job security would make them confident about the housing market. Some 28 per cent responded lower house prices, and just one per cent said an increase in prices would give them confidence.
Paul Broadhead, BSA head of mortgages and housing, said: “These results mark the first time that ‘raising a deposit’ hasn’t been the biggest barrier to home ownership in a decade. Many households have increased their cash savings during lockdown.
“If they grow more secure about their job prospects, this may enable buyers to put a little more towards a deposit, and if prices do moderate somewhat, it could help with affordability issues – especially for first-time buyers.”
“Once the market settles back into some form of normality and confidence in job security rebuilds, we could see a fresh landscape that appeals to aspiring homeowners,” he added.
Mortgage holiday extension could hinder lending capacity – industry reacts
Earlier this week, it was reported that the Financial Conduct Authority (FCA) was considering extending payment holidays to avoid borrowers falling into arrears and being at risk of repossession.
The FCA said it would be meeting with banks this week to discuss what support should be available once the payment freezes end, and said its plans will be confirmed in the coming weeks.
Paul Broadhead, BSA’s head of mortgages and housing said a blanket extension to payment holidays would not necessarily be in the interest of borrowers as it would mean lenders would not have an insight into their individual financial circumstances.
“If a borrower is likely to be affected for a longer period it is important that they speak to their mortgage lender. By speaking to their lender, they will receive tailored support appropriate for their circumstances,” he added.
Broadhead said: “Pausing mortgages for an extended period could also hinder lenders’ capacity for new lending just when it is needed to support the UK’s recovery from this crisis.”
Non-bank trade associations have already come together to ask the Treasury for support as they do not have the same access to funding banks have, limiting their ability to provide borrowers with mortgage holidays.
The representatives proposed schemes to the Bank of England and the Treasury to support them in offering payment holidays, but no action has been taken.
Vic Jannels, CEO at the Association of Short Term Lenders (ASTL), said: “We believe that our members will be an important part of the solution as and when we exit this pandemic and rebuild our economy.
“It is important that we work together on an effective and diverse financial response to the current situation in a way that protects consumers and supports businesses.”
Looking for the best solutions
UK Finance said it continued to work with the government and regulators to find a solution for borrowers during the crisis.
A spokesperson said: “All providers are ready and able to offer support to their customers who are impacted directly or indirectly by Covid-19.”
Lenders extend mortgage offers by three months
The move comes as the industry has been significantly affected by the restrictions imposed as part of the coronavirus pandemic, including no in-person valuations or solicitors witnessing contracts.
Lenders have already quizzed the government about shutting down the housing market, after communities secretary Robert Jenrick tweeted that moves should be delayed wherever possible.
Lloyds Banking Group, the UK’s biggest lender, had already announced it would be extending offers by three months as part of its mitigation efforts earlier this week.
‘Achieve sensible outcome’
The wider extension was announced as a joint statement by trade bodies UK Finance and the Building Societies Association (BSA).
They noted that if borrowers’ financial circumstances were hit during the extension period, or if the terms of the purchase changed, they would work closely with the borrower to “achieve a sensible outcome”.
UK Finance chief executive Stephen Jones said lenders recognised that many people looking to move into their new home were facing significant stress and uncertainty due to the impacts of coronavirus, with social distancing measures meaning many house moves would need to be delayed.
“It is clearly not appropriate for people shielding or self-isolating to move home,” he said.
“Therefore, where chains contain people in these groups, lenders, conveyancers and other professionals are working together to enable these customers’ moves to be delayed.
“Where people have already exchanged contracts for house purchases and set dates for completion this is likely to be particularly stressful.
“To support these customers at this time, all mortgage lenders are working to find ways to enable customers who have exchanged contracts to extend their mortgage offer for up to three months to enable them to move at a later date.”
BSA chief executive Robin Fieth echoed these sentiments and acknowledged the enormity of the situation.
“Lenders and borrowers face an unprecedented set of circumstances,” he said.
“People who would have been preparing and expecting to move house in the coming weeks now face a wait until Covid-19 restrictions can be lifted.
“Our hearts go out to them and our heads are clear that it would be unfair for these people to have to start their mortgage application all over again once life returns to a more normal state.
“A three-month extension of existing mortgage offers seems a fair and reasonable step to take.”
Leeds Building Society was one of the first lenders to respond to the announcement.
It confirmed that offers, which are six months as standard, would be extended to nine months where exchange of contracts has taken place.
Chief customer officer Jaedon Green said this would help borrowers who expected to complete their home purchase in the near future.
“In line with other lenders, we’re working hard to minimise disruption and inconvenience to our customers at what is a challenging time for everyone,” he said.
“Home moves are recognised as potentially stressful under normal circumstances, so we’re doing all we can to support our customers and intermediary partners.”
The mutual added that applicants whose offer expires after 30 April do not need to get in touch at this stage.
Limited company BTL included in mortgage holiday measures
Both trade bodies confirmed the details to Specialist Lending Solutions, noting that their member lenders would be taking this approach.
The intention of the buy-to-let measures announced last night, to match those for residential borrowers, is that any residential tenant should not be impacted by the situation.
However, commercial properties and business tenants are not covered by the mitigating factors.
Lenders who are not a part of either trade body will be taking their own approach to the situation.
Castle Trust told Specialist Lending Solutions it is considering any hardship on a case-by-case basis at the moment to help ensure it is providing the most appropriate support.
The lender added that it would keep the policy under review as the situation develops.
Protect landlords and tenants
UK Finance and the BSA published the key steps of how the mortgage payment holiday and moratorium on repossession and eviction activity will operate.
Commenting on the announcement, Nationwide director of mortgages Henry Jordan said: “As the UK’s second largest buy-to-let mortgage provider we feel it is important to extend protection to landlords and their tenants during this uncertain period.
“We have extended mortgage payment holidays to include rental properties so that landlords with tenants who are unable to meet rental payments because of coronavirus are protected as much as possible.
“These payment breaks will be able to be arranged via The Mortgage Works – Nationwide’s buy-to-let arm. We would encourage tenants to speak to their landlords if they are impacted or worried about coronavirus to ensure that steps can be taken to support them at this time.”
Bank of Ireland emphasised that payment breaks offered by the bank will not affect customers’ credit files held by credit reference agencies and that its support included mortgages provided through its partnership with the Post Office.
Mortgage lenders halt residential and buy-to-let repossessions – how it will work
They are also suspending all repossession orders currently active, however, formal demand notices telling borrowers how much they owe will continue to be issued but not acted upon for 90 days.
A joint statement from trade bodies UK Finance and the Building Societies Association (BSA) set out how the operation to pause possessions will work:
- Lenders will suspend all possession orders
- Lenders will not commence any court action, including putting the case to court or instructing on matters
- Lenders are able to issue a formal demand, so that the customer is aware of the money they owe and are informed that the case will eventually go to possession proceedings.
- This letter is valid for eight weeks, but firms will agree not to take any further steps until the end of the 90-day period
- There are exceptions for empty properties or where the customer wants the possession to go ahead
- In buy-to-let, lenders would still use a Receiver of Rent where appropriate but would not move to possession if the tenant could not pay
The easing of possessions is in addition to the flexibility announced for affected residential borrowers and buy-to-let landlords outlined over the previous two days.
This includes up to three months payment holiday and other flexibility from lenders.
Robin Fieth, chief executive of the Building Societies Association (BSA) said: “Building societies are acutely aware that this is a worrying time for those with a mortgage or who pay rent as both typically account for a significant proportion of household expenditure.
“Now is a time for lenders to be flexible. The steps being taken by the industry today will offer some breathing space for those affected by the Covid-19 situation whether directly or indirectly.
“The best first step advice remains to get in touch with your lender or landlord.”
UK Finance CEO Stephen Jones added: “The industry wants to reassure customers that they will not have their homes repossessed at this difficult time and therefore, these measures will start from 19 March.”
How the residential and buy-to-let mortgage payment holidays will work
Three-month payment holidays have been announced for all lenders that are members of UK Finance and the Building Societies Association (BSA), along with a moratorium on repossessions.
Lenders can offer a payment holiday of up to three months without the need to assess borrower circumstances and applications can be made on a self-certification basis.
However the trade bodies emphasised that landlords should pass on the relief to their tenants during this period.
Some of the biggest lenders have already set out details of how they will respond, including Lloyds Banking Group, NatWest, Barclays and Nationwide.
However, lenders may extend their flexibilities in different directions or under varying means.
UK Finance and the BSA have set out the underlying principles of how the schemes will operate for owner occupiers and landlords, but highlighted contacting the relevant lender as soon as possible was vital.
The key points
- A payment holiday will be available to all customers who are up to date on their mortgage payments.
- A payment holiday will also be available to all buy-to-let landlords whose tenants have lost income because of the impact of Covid-19. Landlords are expected to pass on this relief to their tenants to ensure that they are supported during this time.
- Customers will still owe the money where a payment holiday has been granted and interest will still accrue, so if borrowers are able to make part of the normal mortgage payment to reduce the money owed or interest charges then they should consider doing so.
- Firms will make every effort to ensure that the payment holiday does not negatively impact on borrower credit files.
- If already in arrears, borrowers should contact the lender as soon as possible. Lenders will review any change in circumstances to ensure that payments remain sustainable.
- If borrowers are already experiencing financial difficulty, lenders have also agreed a three month moratorium on residential and buy-to-let possession action, meaning that no homes will be repossessed at this difficult time.
What is a payment holiday?
With a payment holiday, borrowers will not have to make any monthly mortgage payments for a set amount of time, in this case up to three months.
However, it is important to remember that the money is still owed and the interest on the mortgage still accrues during a payment holiday.
At the end of the payment holiday the lender will be in contact to assess circumstances and agree a manageable way to repay the interest charges incurred and make up the deferred payments. Each lender will have a range of options to do this.
Who will be eligible for a payment holiday?
To be eligible for a payment holiday borrowers will need to be up to date on mortgage payments.
For buy-to-let landlords it will be available if tenants have lost income because of the impact of Covid-19.
There are a number of options available and payment holidays are not always the most suitable solution for everyone. By speaking to the mortgage provider, they can tailor the best option.
How to apply?
If borrowers are concerned about making mortgage payments they should contact the mortgage provider as soon as possible. Documentation is not required; borrowers will just need to self-certify that their income has been either directly or indirectly impacted by Covid-19.
Buy-to-let landlords will need to self-certify that their tenant’s income has been impacted by Covid-19. Landlords are expected to pass on this relief to their tenants to ensure that they are supported during this time.
At the end of the payment holiday the lender will make contact to assess circumstances and agree a manageable way to repay the interest charges incurred and make up the deferred payments. Each lender will have a range of options available to help you do this.
How long will it take to process an application?
Firms are doing their best to support their customers during these unprecedented times. However, the spread of Covid-19 is also having an impact on their own staff and applications will be dealt with as quickly as possible.
What will happen to credit scores?
Mortgage providers will make every effort to ensure that borrowers taking a payment holiday will not be negatively impacted on their credit score.
What happens for those already in arrears?
Lenders will make every effort to support people already in financial difficulty and will make this process as simple as possible. Mortgage providers have agreed to a three-month moratorium on residential and buy-to-let possession action, meaning that no homes will be repossessed at this difficult time.
What should tenants do?
Tenants should contact their landlord or managing agent if they have problems paying rent. For landlords whose tenants are unable to pay their rent, they should contact the lender as soon as possible to discuss the options that may be open.
Specialist brokers will be needed to help mortgage prisoners, says BSA
Paul Broadhead (pictured), head of mortgage policy at the Building Societies Association (BSA), spoke at The Council for Licensed Conveyancers’ (CLC) annual conference and said the appetite from building societies to help this market segment could grow in the coming months.
However, he said it was too early to determine whether this would be done with the development of a mortgage prisoner product or changes in criteria.
He said: “The Financial Conduct Authority only changed its rules about using a relative affordability assessment at the beginning of December and building societies are now working out how that might work.
“We’re only now starting to get a picture of borrowers and their attributes and can’t design a product without knowing that.”
Broadhead said he expected to “see some movement” in this area by spring.
Earlier this month, the Financial Conduct Authority criticised high street lenders for not adopting its affordability assessment changes as its analysis showed only 14,000 of the 250,000 borrowers placed with inactive, closed or unregulated lenders were able to benefit.
And today UK Finance revealed it had contacted the FCA about forming a pool of brokers willing to work with the mortgage prisoners.