The longer-term impact of payment holidays on the mortgage market

The introduction of this Government initiative was a highly positive one, and it has served to help struggling homeowners, tenants and landlords across the UK. The latest figures from UK Finance outlined that one in six mortgages are now covered by a payment holiday, with more than 1.82 million mortgage borrowers having been granted a payment holiday by lenders. The trade body also reported that lenders have welcomed the Financial Conduct Authority’s draft guidance consultation and the Prudential Regulation Authority’s related publication on continued support for borrowers via mortgage payment holidays. It has also voiced its support for the halt on involuntary repossessions until 31 October.

Following news of this extension, the Building Societies Association (BSA) published some consumer research to outline perceptions around this form of support. This found that mortgage holidays have helped people in these tough times, with 93% of homeowners saying that it has been fairly or very helpful and just 6% saying that it has not been helpful. However, among landlords, 75% have found the payment holiday helpful but 21% said it has not been helpful.

Most borrowers (68%) were reported to be fairly or very confident that they will be able to meet their mortgage payments once their payment holiday ends. However, more than a quarter (27%) are not confident they will be able to pay. The BSA said that lenders will target tailored support for these people in particular, to ensure they get the help they need. Landlords seem to be less certain than homeowners with 34% not very or not at all confident that they will be able to pay. These results indicate that the preferred repayment method for most is to repay over the remainder of their mortgage term with 53% of homeowners and 32% of landlords favouring this approach.

These figures make for some interesting reading. As outlined, this has proved a vital lifeline for those who have taken a financial hit as a result of the recent pandemic. Although it’s inevitable that this will have a longer-term impact on some borrowers, landlords, lenders and the general mortgage market.

All lenders, large and small, have been asked to make difficult decisions across many aspects of their business. They have faced a huge amount of pressure from the Government in terms of having mortgage payment holidays forced upon them at relatively short notice and this extension will place a further burden on lenders. In particular on those non-deposit taking institutions and specialist lenders with securitised assets.

How lenders view these loans and their interpretation of them also needs to be considered. Despite official credit ratings not being directly affected from mortgage payment holidays, it remains to be seen if the uptake of these will impact any future borrowing. For example, if landlords are trying to finance a new purchase at the same time as being on a mortgage payment holiday then lenders may take this into account and could take the decision to reject new applications during this period. And if lenders believe landlords who took the payment holiday don’t have the ability to service their existing portfolio in the future, will this diminish their appetite for further borrowing?

Any payment void will generate more questions from lenders over future borrowing needs. This means that the importance of the advice process will continue to grow as additional complexity emerges from this tough lending period. And the intermediary market will remain a key facilitator in helping a variety of borrowers, new and existing, to meet their property-related needs going forward.