Adam Wells, director at Lloyd Wells Mortgages, said the lack of clarity provided by the regulator could lead to complaints if borrowers end up disadvantaged because they took a payment holiday in good faith.
Mr Wells said: “The information that was provided when the payment holidays became available was that if you take a payment holiday it will not have a negative impact on your credit file.
“If it turns out that it will impact an applicant's ability to apply for a mortgage in the future, I would expect to see complaints submitted.”
On May 19, the Financial Conduct Authority’s information for consumers on mortgages and coronavirus read: “Our guidance makes clear to firms that they should ensure that taking a payment holiday will not have a negative impact on your credit file”.
However, the page was later updated to add: “There are other ways lenders can tell whether you have taken a mortgage payment holiday, which could impact future lending decisions.
"Lenders may take into account other information when making lending decisions, including information provided by you or bank account information, for example”.
Speaking on a Mortgage Market Alliance podcast, Liz Syms, chief executive of Connect for Intermediaries, said landlords may have taken payment holidays to preserve their cash flow, in the event that their tenant would be unable to pay rent, and under earlier guidance that it would not negatively affect their credit file.
But after the FCA’s updated guidance, which said a payment holiday could impact future lending decisions, Ms Syms said in the podcast it was a “shame” that landlords who took a payment holiday to preserve cash flow could see their decision “backfire” on them.
Dominik Lipnicki, director at Your Mortgage Decisions said he did not believe lenders will be able to differentiate between borrowers that needed the payment holiday and those who took one as a precaution, due to the “sheer volume” of payment holiday applications.
The availability of three-month mortgage payment holidays, for borrowers experiencing difficulty due to coronavirus, was announced by the government on March 17.
The following day the support was extended to landlords whose tenants were experiencing financial difficulties due to coronavirus.
Figures from UK Finance show 1.82 million mortgage payment holidays had been issued as of May 20, equivalent to one in six mortgages.
Speaking to FTAdviser, Ms Syms added that the buy-to-let market could be more affected than residential, as lenders expect landlords to be able to deal with void periods where a tenant is not living in the property.
Ms Syms said this was causing some lenders to question whether landlords, who took a payment holiday, were “so tight financially” that they wouldn't be able to “cope” with a potential void period in the future after lending to them.
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.”
chloe.cheung@ft.com
