Following the Chancellor’s 17 March statement, below are some frequently asked questions regarding mortgage repayment breaks.
Q: Will all customers receive an automatic three-month payment break?
A: A flexible approach will enable us to offer the right support for our customers. We will want to speak to customers to find out how they can tailor the best option for them. We will help customers to find the best solution on a case-by-case basis, but an automatic payment break may not always be the most suitable approach and may not be required by all customers. We will be speaking to credit reference agencies to ensure consistent treatment of those customers to whom a repayment break is made available.
Q: How do I apply for a payment break?
A: We recognise that these are unprecedented and difficult times for customers. This is why we are offering customers who are up to date with their mortgage payments and impacted by COVID-19 the ability to self-certify if they need help. You can request a mortgage payment break here.
Should the customer wish, we could conduct a full assessment of their finances. It’s therefore important that customers who believe they may be impacted by COVID-19, either directly or indirectly, contact their lender at the earliest possible opportunity to discuss if the payment break is a suitable option for them.
Q: Are all customers eligible for a payment break?
A: This is one of a number of options that lenders can offer. The offer of a payment break can be made available to customers not already in arrears and up to date with payments. Under FCA rules, lenders must ensure that any forbearance offered enables recovery through full repayment of arrears, minimises the long-term impact of arrears and that the mortgage remains affordable and sustainable. Overall, forbearance needs to minimise the risk of possession. This is why payment breaks are generally short-term.
For customers who are already in arrears or in financial difficulty, we will consider the full suite of forbearance options that are ordinarily available to customers under existing rules. We will look at customers’ individual circumstances and offer support on a case-by-case basis. We are ready and able to offer support, we would encourage customers to contact us at the earliest possible opportunity to discuss the options available to them.
Q: But lenders are only offering a short-term measure – what about customers who may be likely to need support longer term or help to recover to their previous position after the payment break expires?
A: Whilst the payment break is in effect, the capital sum of the loan remains as is, while the interest that would have been paid in the period accrues. At the end of the payment break period, the rules will re-apply. We will get in touch with customers to assess their circumstances, including income and expenditure, and come to an arrangement with the customer to enable recovery through the full repayment of the arrears. If the customer is in financial difficulty, we will come to an arrangement to recover the customer into a sustainable position on the mortgage. Any forbearance arrangements will aim to minimise the risk of possession.
Q: How do ‘payment breaks’ work?
A: The mortgage repayment is deferred for a period. The monthly payment changes to zero, and interest accrues for the period. This may be particularly appropriate where there is a temporary shortfall of income.
However, this is not a solution where, because of a permanent reduction in income, a borrower is unable to afford anywhere near the full mortgage repayments and there is little prospect of an improvement in the situation in the foreseeable future. Where repayments are deferred for a time, the borrower will need to make up these repayments in the future, which could be over the remaining term.
Q: How will this affect my credit score?
A: Lenders have different approaches for reporting to credit reference agencies. Arrears that are accrued may be reported to the CRA. We will make efforts to ensure that forbearance offered under these circumstances will not result in an adverse impact on the customer’s credit score.
Q: What if I don’t own my property but rent instead?
A: You should contact your landlord or managing agent if you have problems paying your rent. If you are a landlord and your tenants are unable to pay their rent you should contact us as soon as possible to discuss the options that may be open to you.
Q: What if I’m already in arrears?
A: You should continue to speak to us. We will review existing arrangements if there is a change in circumstances.