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FCA updates its guidance on mortgage payment holidays

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There has been some confusion in relation to the impact that taking a payment holiday(Deferring a mortgage payment) will have on a persons credit file. When the FCA initially announced that lenders must permit a 3 month payment holiday back in April (now extended until the end of October) they made it clear that deferring payments must not directly impact on a persons credit profile.

It has since become clear that, although the credit report will not show a default of mortgage payments, any deferment (or payment holiday) could still have an impact on a persons overall credit profile, which may have consequences in relation to obtaining finance in the future.

The FCA have now updated their guidance as follows:

Lenders should not report a worsening status to credit files if you take a payment freeze. This should help make sure that there is no long-term negative impact on your credit file if you are able to get back on track at the end of a payment freeze.

However, this does not mean that your credit score will not change over this period, as these are influenced by a wide range of factors.

You should also remember that credit files aren’t the only source of information that lenders can use in lending decisions. Factors other than payment history may also be relevant. For example, lenders may take into account your bank account information, or consider your use of credit products or how much you are in debt, when making a lending decision.

Your lender should provide you with general information about the potential impact of a payment freeze on any future lending decisions.
It is also important to remember that the protection to your credit file will not continue indefinitely. If your payment freeze comes to an end, and you do not make a payment under the terms agreed with your lender, it is likely that your credit file will be negatively affected.

It is important that you counsel your existing customers in relation to the real impact of taking a ‘payment holiday’. If a customer is able to pay their mortgage or at least make a reduced payment, then they should be encouraged to do so. You should continue to explain that in deferring payments there will likely be an inadvertent consequences, which may limit their options when it comes to arranging a new mortgage in the future.

Almost 2 Million borrowers that have taken a payment holiday.

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