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11
MAY
2020

Coronavirus mortgage payment holiday strategy awaited

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Photo by Tierra Mallorca on Unsplash

Courtesy of The Guardian

Currently 1.6 million homeowners are not paying their mortgages after taking a “payment holiday” at the start of the coronavirus crisis. But the three-month break from payments will come to an end much sooner than this crisis.

Boris Johnson has set out Britain’s lockdown exit strategy and it’s pretty inevitable that millions of people will remain out of work throughout this year.

The current mortgage payment-holiday arrangement isn’t enough. When, from June, the three-month period arranged by borrowers and their banks expires (and the chancellor also begins to unwind the furlough scheme) huge numbers of householders will still need help. And there’s no word from government yet about what, if anything, comes next.

Here are a few ideas kicking around the mortgage industry which the chancellor could consider:

A mandatory extension of the three month payment holiday to six months
Banks would automatically have to grant an extension, with no impact on the borrower’s credit record. But banks are likely to bridle at this; while 1.6m home loans on holiday may seem relatively manageable in a country of 27 million households, by value they add up to about 20% of their total mortgage book. Half a year without any income from one-fifth of their loans won’t push any bank or building society into insolvency, but may present serious financing issues for some.

Photo by Tierra Mallorca on Unsplash
A qualified extension of the payment holiday, with many more hoops to jump through
This is the more likely option. The banks, to their credit, put the new payment holiday systems in place extraordinarily rapidly (funny the things Britain is good at – payment systems rather than virus testing or PPE production). Privately, they believe that a not insignificant number applied for a payment holiday as a “nice to have” rather than a necessity. If they are to prolong the current holidays, the banks want to be much more selective about who they give it to.

UK Finance, the group that represents the banks, said they are “carefully considering options for those who may need further support at the end of the three-month payment holiday period”. Rishi Sunak, the chancellor, may want to give them a bit of a hard nudge. We are going to need something more robust in place in weeks, not months.

Meanwhile the forgotten millions in this story are tenants in the private rented sector. Economically, this crisis is devastating the young, many of whom were working in low-paid jobs in the hospitality and services sector. When the furlough scheme ends and the temporary ban on evictions lapses, the prospects for many in their 20s and 30s is grim. There are payment holidays for mortgage holders and landlords, loans for businesses, bailouts for big firms, but for tenants, almost nothing.

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