Specialist lenders may need end to self-cert payment holidays to survive
16 Jun 2020
The mortgage payment holiday extension always seemed likely, especially given the government’s focus on not creating a cliff-edge of struggling borrowers who have to find the money to pay their mortgage in the next month or so.
That said, it is possible to see a slight change of tone in the words of the Financial Conduct Authority’s (FCA) interim chief executive, Christopher Woolard, when making this announcement which focused on those borrowers who are deemed able to “afford to re-start mortgage payments”.
Woolard says “it is in their best interests to do so” and that “customers should talk to their firm about the best option available for them”.
If this does not present an open door for advisers to contact clients who might be in this situation currently, then I don’t know what will.
Especially as – reading between the lines – there may well be some concern at both FCA and government levels around the number of payment holidays that have been granted and the understanding of borrowers in terms of how they will pay them back.
FCA shifted tack
Lenders, almost universally, welcomed the announcement that payment holidays could be extended although it was interesting to hear the views of Nationwide chief executive Joe Garner.
He suggested an extension of a payment holiday should appear on a borrower’s credit rating as a temporary notice as it could be read as a signal the borrower is “struggling”.
And he outlined Nationwide’s belief that many of its initial borrowers who had taken a holiday had done so as a “precaution” and would return to making payments at the earliest opportunity.
While that suggestion was not taken up, it does appear the FCA has shifted slightly in tack.
Indeed, the explicit guidance to consumers has now changed to say that payment breaks could affect “future creditworthiness assessments”.
That seems to be a common-sense approach.
It means when lenders look at individual borrowers, regardless of the credit file, if they can ascertain that holidays or extensions have been taken, then they have got to be able to take that income into account when making an affordability assessment.
Ending self-cert for mortgage holidays?
Of course, just how any further spike in mortgage payment holiday requests or extensions is going to have on the lending fraternity and its ability to bounce back from the lockdown, remains a serious question.
In that regard, it’s perhaps possible to split out the mainstream, larger lenders from their specialist counterparts in this debate.
While I would think publicly the latter group will continue to support mortgage payment holidays, they will be focusing on the ‘pay if you can’ message more than others.
Their financial situations are likely to be hit much harder by ongoing and protracted payment holidays, especially if borrowers are able to pay but are just opting to withhold cash during this period.
It may be that a self-certification approach to borrowers requesting holidays may have to change – after all, this could be the difference between ongoing survival and having to close doors for good.
Plus, I’m sure many lenders will be hoping that the ability to secure a payment holiday lasts until the end of October and no more.
Indeed, with lockdown being eased, advisers could have a strong part to play here in outlining the options available to borrowers, especially for those who could either start repaying, or might be able to move to interest-only, or might be able to pay a lower monthly amount.
I’m sure lenders would welcome that support, as ultimately any payment is going to be better for the borrower in the long-term.
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