Mortgage holidays only delay hardship, charity warns

Mortgage stress

Citizens Advice Scotland calls on lenders to do more to support homeowners. 

2nd June 2020 by Gavin Stuart 0 Comments

Banks and building societies must do more to help those struggling to pay their mortgages, a charity has said.

Citizens Advice Scotland (CAS) welcomed an extension to the mortgage payment holiday scheme, but warned that this will leave many homeowners facing more expenses in the long term.

This week, the Financial Conduct Authority (FCA) confirmed that customers who have had a payment holiday and are still having difficulty making mortgage payments can be offered a further three-month extension. Those who need a payment holiday but have not yet requested one now have until 31 October to do so.

However, lenders will still charge interest on the mortgage during a holiday, and the missed payments will get added onto the mortgage after the holiday period ends.

These missed payments and additional interest will mean increased payments for consumers at a later date, CAS has warned.

Myles Fitt, the charity’s financial health spokesperson, said: “This updated guidance from the FCA is welcome news in the short term for people who are struggling to make mortgage payments as a result of coronavirus.

“But it’s important to remember that interest on mortgages is still building up when you take a payment holiday and the missed payments have to be paid back. This could leave people out of pocket in the long-term which will only add to their hardship.

“What would really make a difference to people in financial hardship would be the freezing of interest by mortgage lenders during payment holidays.

“We’ve also seen one lender voluntarily announce a year-long hold on repossessions. All mortgage lenders should be offering this otherwise there is the threat of repossession once payment holidays come to an end for people who are still in difficulties and who just need a bit longer to recover.”