2 million homeowners could have mortgage holidays for upto a year

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Homeowners struggling with their finances because of the pandemic may be given a break from mortgage payments for a year to ease pressure.

A long-lasting payment freeze is one of several measures that may be announced by the Financial Conduct Authority to try to avoid thousands of people defaulting on mortgages and having their homes repossessed.

There is also a focus on the need for thousands more people to be recruited and trained as debt advisers to cope with an expected flood of people in financial distress in the coming months.

At present Britain has only about a quarter of the number working in debt charities that will be required, sources involved in the discussions about the proposals have said.

The Bank of England has predicted that two million people could lose their jobs this year, before employment recovers strongly next year.

“There are discussions going on about how to help consumers get through this period by extending mortgage payment holidays until people get back into jobs,” one banker said.

The aim is to offer a payment holiday long enough to bridge the gap, potentially freezing payments by a year to 18 months. “The last thing everyone wants is a repeat of the 1980s and 1990s, kicking families out onto the streets.”

The FCA will hold a call with senior bankers on Thursday to discuss what to do with the thousands of customers who have already taken temporary payment holidays on mortgages, credit cards and other loans. Those measures, announced in March, are due to come to an end in late June or July.

The City regulator wants banks to agree a unified strategy so that customers are not confused and to avoid unequal treatment.

The FCA and lenders are wary about rolling over all of the payment holidays because interest is accruing during the period of non-payment. There are concerns that customers could end up with mountains of debt they cannot repay.

However, several people involved with the consultation believe there would be merit in extending mortgage terms for some customers.

Banks are expected to be required to separate customers into different groups.

One group would be made up of those who could be put back onto normal payment terms. At the other end of the spectrum are those in serious distress with no real prospects of paying, who will need independent debt advice.

The middle group would be people likely to be able to get their finances in order but who need time to do so. That group contains people who may lose their job but have a history of regular payments and prospects for finding new employment.

Other measures may include switching borrowers from repayment to interest-only deals for a year, or allowing them to make half of their payments for an extended period.

In all scenarios, interest would continue to accrue.

Tom Groom, UK banking partner at EY, said that other countries had introduced long payment breaks in the wake of the crisis but these could make it difficult for banks to understand customers’ conditions.

“Longer moratorium periods also risk masking the extent to which debts will ultimately be irrecoverable, which will be challenging for banks to represent in their financial statements,” Mr Groom said.

The FCA did not comment.