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Mortgage arrears: payment problems

This content applies to England & Wales

What happens when a borrower falls into arrears with her/his mortgage, and the steps that can be taken to resolve the situation.

Covid-19: Payment breaks 

The Financial Conduct Authority (FCA) has confirmed that homeowners whose income has been affected by the coronavirus pandemic have until 31 March 2021 to apply for a payment break.[1] This deadline has been extended from 31 January 2021.

Borrowers are able to request an initial payment break of up to six months: three months' followed by a further three months' break where necessary.[2]

In force from 20 November 2020, the FCA Mortgages and Coronavirus: Payment Deferral guidance clarifies that:

  • homeowners who have not applied for a payment break are still able to apply
  • homeowners who have had a payment break shorter than six months will be able to extend or apply again, so that they receive six months in total
  • homeowners who have had a payment break for six months will not be able to apply or extend their payment break
  • the payment break applies to payments up to and including July 2021, as long as the homeowner requests a payment break before 31 March 2021.

Where a homeowner does not qualify for a payment break under the Payment Deferral guidance, because, for example, they have exceeded the six-months time limit, the FCA Tailored Support Guidance applies and firms are encouraged to explore tailored short-and long-term options. If another payment break is agreed, it will not be subject to the Payment Deferral Guidance but to the Tailored Support Guidance.[3]

The revised guidance is force from 20 November but firms were encouraged to provide the enhanced support sooner if they were able to do so. The new measures were originally announced on 2 November 2020.

The payment break applies to:

  • residential mortgages
  • buy to let mortgages where the tenant cannot make payments because their ability to pay has been affected by coronavirus.

If the lender agrees to the payment break, the deferred monthly instalments will normally be added to the mortgage balance using a process known as ‘capitalising’. This means:

  • more interest will be charged over the term of the loan
  • the contractual monthly instalment is likely to increase when payments recommence.

Lenders should provide personalised information to show how capitalising the deferred payments will impact on the monthly payments.

Alternatively, the lender may offer to extend the term of the mortgage to account for the missed payments.

Borrowers can request tailored support if they are still in financial difficulty after the deferral period. However, it is in borrower's best interest to return to full payments if they are able to do so.

How to request a payment break

There is no specific application form to request the payment break. Borrowers should contact their lender to discuss options. The lender may ask for more information, or evidence such as medical advice to self-isolate, or request confirmation of a workplace closure or suspension of employment.

The Financial Conduct Authority (FCA) has published guidance for borrowers on how to request payment holiday.

If the borrower is already in arrears, the lender should come to an arrangement that minimises the risk of possession. See Tactics for dealing with mortgage lenders for more information.

The FCA has published guidance to lenders that no responsible lender should consider possession action at this time. A mortgage lender is likely to contravene Principle 6 of the FCA Handbook and MCOB 2.5A.1R if it acts in a manner inconsistent with this guidance. The FCA ban on repossessions has been extended to 31 January 2021.

UK Finance has stated that they do not expect the payment break to negatively affect borrowers’ credit reference files. Lenders are coordinating reporting to credit reference agencies to ensure a consistent approach. The FCA has reminded borrowers that credit reference files are not the only source of information that lenders can use to assess creditworthiness.

The Information Commissioner’s Office website has information about how payments and defaults are reported to credit reference agencies.

Effect on suspended possession orders

If the lender grants a payment break and the mortgage is already subject to a suspended possession order, the order will be breached if the contractual monthly instalment is not paid.[4] Borrowers should discuss the implications of breaching the terms of the order with their lender and seek assurances that the order will not be enforced as a result of an agreed coronavirus-related payment break. Borrowers can apply to court for a variation of the order to prevent enforcement once they are able to make the contractual payment again. See Changing possession orders for more information.

If a payment break is granted the contractual monthly payment element is likely to increase once payments recommence. Borrowers should consider whether they will be able to make the increased payments. Lenders could extend the term of the loan instead of increasing the monthly payment where appropriate.

Further information

For more information on the measures introduced to deal with the impact of the coronavirus pandemic on homeowners, see Covid-19: Mortgage payment problems.

For general information about help with housing costs for home-owners see Support for mortgage interest.

For information about mortgage possession proceedings see Mortgage arrears possession process.

For information about the steps that lenders and borrowers should take to ensure that court proceedings are a matter of last resort see Pre-action Protocol for Possession Claims based on Mortgage Arrears. For additional information on mortgages see Buying a home.

[1] paras 1.1 and 1.8 Financial Conduct Authority Finalised guidance: Mortgages and Coronavirus: Payment Deferral Guidance, November 2020.

[2] para 1.9 Financial Conduct Authority Finalised guidance: Mortgages and Coronavirus: Payment Deferral Guidance, November 2020.

[3] para 1.8 Financial Conduct Authority Finalised guidance: Mortgages and Coronavirus: Tailored Support Guidance, November 2020.

[4] Zinda v Royal Bank of Scotland [2011] EWCA Civ 706.

Negotiating with mortgage lenders

Negotiating with lenders and ensuring compliance with pre-action protocol and MCOB rules. 

Reducing mortgage costs

How borrowers might be able to reduce the cost of their mortgage. 

Voluntary sale

Options and consequences for borrowers considering a voluntary sale after repossession. 

Sale and rent back schemes

What sale and lease back schemes are, how to use them, and their potential pitfalls. 

Mortgage rescue scheme

The mortgage rescue scheme helped eligible homeowners with a shared equity loan or a mortgage to rent option. This scheme closed to new applicants on 31 March 2014. 

Homeowners mortgage support scheme

Homeowners who had suffered a temporary loss of income may be able to reduce their monthly mortgage payments by deferring some of them for up to two years. The scheme closed to new applicants in April 2011. 

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