UK Finance figures show around 2.6 million households took a payment holiday. But according to Experian only half of those borrowers suffered a decline in their spare income while a quarter used the scheme to build up a cash reserve. The millions of families who took the first wave of payment deferrals did not know then it could affect their future borrowing chances. That news came later from the regulator.
With the opportunity to apply for a payment deferral extended, now wiser, borrowers’ attitudes to the scheme may have changed this time around.
So, this week Mortgage Solutions is asking: Have you noticed borrowers are more wary about taking a mortgage payment holiday now it’s been said it could affect future lending decisions?
In the North East, not many people have taken out payment holidays. The take up was quite low from the beginning as a lot of people kept their jobs and unemployment wasn’t high.
Even in the cases where one party lost their job, usually the other party was still working. So I did not see many people go for mortgage holidays here.
However, I have noticed some of the landlords who took payment holidays out are now regretting it because they have come to apply for mortgages and underwriters are looking at their finances with a fine tooth comb.
They took a payment holiday to boost their cash flow, even if they still had rent coming in, but they now realise that although it does not affect their credit score it can affect future borrowing.
I knew of one who used the cash saved from a payment holiday to invest in further properties, which obviously they were not supposed to do.
When borrowers do that, it can make them look untrustworthy in the eyes of the lender because they wonder why people would go for a particular loan or support when their income has not suffered.
Conversations with our clients have changed considerably since the introduction of the ‘generous’ proposal from lenders of a mortgage payment holiday.
Many borrowers were quick to take this up as at the time the future was unknown and it felt prudent to pull in the purse strings where possible. However, many of us as brokers remembered the problems borrowers experienced through taking a mortgage holiday during previous recessions.
By putting ourselves in the lender’s shoes, we see it is their responsibility first and foremost to protect the level of risk and balance sheets. For this reason, we are not surprised to see it could and therefore probably will affect lending decisions in the future, despite the industry reassurance at the time it would not.
We hear time and time again if something sounds too good to be true – it probably is.
Although credit references do not show payment holidays in the same way as mortgage arears, we are seeing questions about mortgage holidays; Covid-related job security questions and extra checks coming up regularly by underwriters.
Underwriters can also see if payment holidays were taken with sight of mortgage statements and the obvious request for recent bank statements.
Knowledge of this pending impact does not seem to be widely known outside of our industry and is not being cautioned by the government or the lending institutes. There was no guidance or caution offered when the flood gates were initially opened for a mortgage holiday instead, they were promoted heavily and easy to obtain.
The role of mortgage brokers and financial advisers in our firm has increased again to give advice in this area and ensure borrowers exercise caution by asking the question that should have been given months ago which is: ‘Is a mortgage holiday absolutely essential?’ and: ‘What other options do you have available?’
I’ve seen less people going for them in the last month or so.
Recently it’s been communicated to them that there are consequences so I think now payment holidays are being taken for the right reasons, for people who are genuinely struggling. Before that they might have said: ‘just in case, let’s put a hold on things’.
I think, you can’t blame people because of the panic that was going around, nobody knew what was going to happen, or whether they would still have a job.
People took it as a precaution including a lot of those who were not struggling. I’m still torn because I don’t think you really penalise people.
A lot of people are losing their jobs and it’s out of their control. People that have lower incomes or are more financially vulnerable are being punished. They are in a genuinely vulnerable position and have had to ask for something that’s out of their control.
It doesn’t sit right for it to show on their credit report or have a knock on effect.
The clients are being punished – potentially three or four years down the line – for something that happens now that they don’t have a lot of control over.
There will be some people who say you should have protected yourself with income protection, or other types of protection to be able to deal with shocks. That’s a valid argument but I think what you’re doing is punishing people when they’re at their most vulnerable.