Should the mortgage holiday scheme have been extended?
Banks warn that some homeowners may struggle to repay additional debt
Up to 70% of homeowners who have taken mortgage holidays do not need to extend their payment breaks and are racking up unnoticed debt, Britain’s banking industry has warned.
UK Finance, which represents more than 250 firms in the sector, has written to the Financial Conduct Authority (FCA) warning that plans to extend payment pauses for another three months are not in the “best interests” of customers, says The Times.
Interest on mortgages continues to accrue during mortgage holidays and “there are concerns that borrowers could run into difficulties when faced with the bigger interest bills”, the newspaper adds.
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The approved mortage-breaks period was due to end in June but was extended earlier this week to allow borrowers to defer payments for up to six months, after the Treasury voiced concerns that an “abrupt end to the scheme could produce a cliff-edge effect”, according to the BBC.
Christopher Woolard, interim chief executive at the FCA, said that if customers could afford to restart mortgage payments “it is in their best interests to do so”, but that “where they can’t, a range of further support will be available”.
However, as YourMoney.com warns, “it’s not free money and many people may not realise the true cost of taking a break from their monthly payments”.
According to the financial information site, homeowners looking for help with their mortgage payments have an outstanding loan of £136,000 on average.
And “while a three-month mortgage holiday only adds an average of £11.21 per month to a mortgage, the debt builds up over time and could add £665.08 to the amount repaid in total”.
Salman Haqqi, a personal finance expert at money.co.uk, said that although mortgage holidays have “proved to be a lifeline for millions of homeowners”, it was “important to remember that you will still owe the money and interest will continue to accrue while the deferred payments remain unpaid”.
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