The majority of customers could afford to start making full payments on their mortgage at the end of their payment holiday, according to UK Finance.
The industry body estimated that around 60 to 70 per cent of customers can demonstrate affordability to resume full payments at the end of their current payment deferral.
Last month (May 22) the government confirmed that homeowners struggling to pay their mortgage due to coronavirus can extend their payment holiday for three months, or start making reduced payments in proposals published by the Financial Conduct Authority (FCA).
In response UK Finance said the FCA’s draft guidance “contains a presumption that firms should offer all borrowers who have already taken a payment deferral a further payment deferral for three monthly payments”.
The industry body described the presumption as “unnecessary and may even be detrimental to a customer who is able to resume payments”. It suggested that a “more tailored approach would be more appropriate at this time”.
According to UK Finance, the draft guidance creates a risk that “customers who do not need a full payment deferral for a further 90 days nevertheless self-select to take a further deferral… when maintaining repayments, in whole or in part, would be more appropriate for the customer in the longer term, without creating short term financial hardship”.
Clayton Shipton, managing director at CLS Money, expressed concern over customers who may have taken a payment holiday without needing one.
He said borrowers who take a payment holiday for six months could experience a “shock to the system” when the support scheme ends.
UK Finance has previously said mortgage lenders were committed to supporting borrowers reaching the end of their three-month payment holiday to choose the next steps that best suited their needs.
Possible next steps include reduced payments, a move to interest-only payments for a period, extending the mortgage term to reduce payments or a further extension of the payment holiday, depending on the borrower’s circumstances.
The industry body said for customers “that have already taken a payment holiday on their mortgage, it may be appropriate in some circumstances for this to be extended”.
chloe.cheung@ft.com
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