Payment holiday uncertainty may bite buy-to-let clients

Mr Wells added it would be “unfortunate” if landlords who passed on the payment relief to tenants are negatively affected. “If they were told that there would be no impact on their ability to acquire credit in the future, and this turns out not to be true, it may set a negative precedent for any future events.”

Seema Malhotra MP, co-chair of the all-party parliamentary group on mortgage prisoners, said: “The FCA needs to go further and prohibit lenders from using the fact that a payment holiday has been taken to penalise customers when lending decisions are made or interest rates set”.

Piers Mepsted, managing director at Financial Advice Centre, said the payment holidays “offered to borrowers so quickly and early in the pandemic looked initially like a generous and even compassionate gesture from lenders.

“However, many of us in the industry had concerns immediately about the long term consequences for borrowers.” 

A spokesperson for Lloyds Banking Group, in response to whether it had updated, or would update its mortgage lending criteria on applicants who took a mortgage payment holiday during the coronavirus, said: “As a responsible lender, we make decisions based on a full understanding of customers’ individual circumstances and affordability and there have been no changes to our existing policy.

“We appreciate these are unprecedented times and some customers may have had or expect a change in their circumstances, which we will consider as part of the application process.”

On May 22 the government confirmed that homeowners struggling to pay their mortgage due to coronavirus would be able to extend their payment holiday for a further three months, or start making reduced payments.

An FCA spokesperson said: “Credit files are an important tool, along with other checks, for making sure that credit is affordable. To minimise the impact of the coronavirus crisis, we have made sure that there is no negative impact on the credit file of consumers who have been granted a payment deferral. Credit files will show that consumers have been up-to-date with mortgage payments for the duration of the payment holiday.

“Lending is a commercial decision for firms based on their own credit risk appetite and the lending criteria which they choose to set. This means that in practice, lenders may use sources other than credit files, such as bank account information, to take account of other factors in their lending decisions. These factors could include changes to income and expenditure, and also any increased indebtedness as a result of interest accruing during the payment holiday.”