When the UK government announced a mortgage payment holiday window in March, this was a lifeline to many homeowners. Records show that around 1.8 million homeowners signed up to the government backed scheme, which offered the chance to defer mortgage payments for three months. This equates to a staggering one in six mortgages in the UK and perfectly reflected the concerns of homeowners and lenders. So, where do we stand when the scheme comes to an end on 31 October?
Will the scheme be extended?
So far the UK government has shown no signs of extending the scheme. Indeed, despite pressure from the devolved parliaments there are also no plans to extend the furlough scheme. Many believe these two schemas are intrinsically linked so it will be interesting to see if the government show any signs of movement in the next few weeks. Even though the financial pressure has reduced for many homeowners, although many are still struggling, records show that 731,000 borrowers are still participating in the payment holiday scheme as of 14 August. So, what is the official guidance from 31 October?
Long-term implications
The Financial Conduct Authority (FCA) is placing subtle pressure on lenders to appreciate the living expenses and the pressures on borrowers. Whether this is the first step on a road to more formal changes remains to be seen. It also looks as though lenders will also be obliged to inform borrowers of the long-term impact on their credit rating, when changing repayment terms. This is an area which is something of a mystery to many borrowers. If they were to extend their mortgage, would this be seen as some kind of default, and will they be penalised for mortgage payment holidays?
There is growing pressure on lenders to prepare official guidance for borrowers after 31 October 2020. It looks as though they will be obliged to inform all borrowers of debt management options available to them. While this will allow the regulator and lenders to maintain a degree of control over the marketplace, it could lead to a huge increase in “real” payment defaults.
Should borrowers return to regular mortgage repayments?
There is clear advice, where you can afford to return to regular mortgage repayments this should be given great consideration. This will help to reduce any short-term impact on your credit rating, alleviate the build-up of debt and try to get things back to some kind of “normality”. There will always be a concern in the back of borrower’s minds, will we have another lockdown, what will happen after January 2021 when the £1000 payments per retained employee are made. At this moment in time there are as many new questions as there are answers.
Even those who could probably afford to return to regular mortgage repayments are having second thoughts. Should they retain capital in a “rainy day fund” just in case? There are certainly many challenges ahead!
Summary
The one saving grace for homeowners in the UK is the fact that the average UK property has retained its value – indeed many have increased in value. This should help to reduce some short-term pressures but there is still a long way to go to full recovery.