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Covid-19: Mortgage payment problems

This content applies to England & Wales

Information for borrowers facing payment problems during the coronavirus (COVID-19) pandemic. 

exclamationFrom 27 March 2020 to 20 September 2020, ongoing possession proceedings were suspended to protect tenants and homeowners from the impact of the coronavirus pandemic. See COVID-19 and housing for full details.

Insurance

Borrowers facing a reduction in income due to workplace closures, self-isolation or sickness should check insurance policies, such as income protection and policies that come as part of a bank account or home insurance.

Payment breaks

Borrowers are able to request an initial payment break of up to 90 days. On 22 May 2020 the Financial Conduct Authority announced that homeowners have until 31 October 2020 to apply and published updated guidance for lenders.

The payment break also applies to residential mortgages and 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 an extension if they are still in financial difficulty after the three month break. 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 October 2020.

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.[1] 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.

Financial Conduct Authority rules

So far, the Mortgage Conduct of Business Rules have not been updated to include coronavirus specific guidelines. The FCA has published a statement on the impact of coronavirus which reiterates the need to treat customers fairly. Rules 13.3.2A and 13.3.4A require lenders to:

  • make reasonable efforts to reach agreements with borrowers in payment difficulties
  • allow a reasonable time to repay arrears, meaning that the lender must not take possession action unless all other reasonable attempts to resolve the position have failed, and
  • consider extending the term, changing the type of mortgage or treating a payment shortfall as part of the original loan.

Interest rates

Reductions in interest rates announced by the Bank of England will only affect contractual payments for variable rate and tracker mortgages. Borrowers with fixed-rate mortgages can contact their lender to find out whether a cheaper option is available. Some lenders may allow interest only payments for a temporary period.

Complaints about lender's conduct

The Financial Ombudsman Service can deal with complaints about mortgage lenders who refuse to allow the payment break or who issue possession proceedings for arrears that have accrued as a result of coronavirus related difficulties. The Ombudsman can also deal with complaints about insurance policies that have not paid out when they should have, or if it becomes apparent that the policy was mis-sold. Coronavirus information for borrowers is available on the Ombudsman website.

Suspension of possession claims and reactivation of proceedings

There was a stay on possession proceedings until 20 September 2020. In addition, in its updated guidance for firms, the FCA has stated that lenders should not commence or continue possession claims before 31 October 2020.

On 21 August 2020, the government announced that the stay to possession proceedings under Part 55 would continue until 20 September 2020. On 22 August 2020, rule 55.29 of the Civil Procedure Rules was amended to provide for possession proceedings that started on or before 19 September 2020 to be stayed until 20 September.[2] Initially, the stay applied from 27 March 2020 until 25 June 2020, and was later extended until 23 August 2020.[3]

It means that if a lender had applied for possession before 27 March 2020, the stay applies, regardless of the stage of the proceedings. No new possession claims will be processed during the period of the stay.

Covered by the stay:

  • applications to enforce a possession order by a warrant or writ
  • appeals of possession orders.[4]

Reactivation of possession proceedings

Following the ending of the stay on possession proceedings on 20 September 2020, claimants and defendants can apply to reactivate proceedings from 21 September 2020. See COVID-19 Reactivation of possession proceedings for details.

Further information is available on Gov.uk. For more information about how possession proceedings are affected, see the page Court and tribunal hearings .

New possession claims

UK Finance has made a statement on behalf of their members to confirm no new possession claims will be issued for 90 days from 19 March 2020. Existing possession orders will be suspended for the same period.

It is likely that any possession action will be affected by the changes to court processes that have been implemented as a result of the COVID-19 pandemic. See Court and tribunal hearings for more information .

A borrower may be able to ask the court to make a time order to deal with temporary difficulties that have arisen as a result of coronavirus. For example, if a borrower has had their employment terminated or suspended, but expects to return to work in the future (see Time orders for more information).

If the borrower was unable to attend a hearing and a possession order has been made the order could be set aside (see Changing possession orders for more information).

Moving home

The government has revised its guidance on moving home during the COVID-19 pandemic to reflect the current position that people can move home if they wish to do so, however certain procedures are to be implemented in order to minimise the risk of spreading coronavirus.

The guidance advises against undertaking activities associated with moving home if a person has COVID-19 or is in self-isolation. Those in vulnerable groups who wish to move should carefully assess their position and consider seeking medical advice before deciding whether to proceed.

Where viewings can go ahead, safety precautions include:

  • not holding open house viewings
  • limiting any physical viewings to members of one household at a time
  • limiting the number of persons to those for whom it is absolutely necessary to attend
  • bringing hand sanitiser to viewings
  • when viewing a property, avoiding touching surfaces, including handles
  • keeping internal door open during a viewing and disinfecting surfaces after each viewing
  • vacating the property for the duration of the viewing
  • practising social distancing.

This could affect homeowners who have entered into voluntary sale agreements with their lenders.

The guidance applies in England only.

The government had published guidance on obtaining Energy Performance Certificates (EPC) during the pandemic.

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

[2] r. 55.29 Civil Procedure Rules 1998, as amended by r.2(a)-(b) Civil Procedure (Amendment No. 5) (Coronavirus) Rules 2020/889.

[3] Practice Direction 51Z, 27 March 2020, as amended by the 120th Practice Direction, 20 April 2020; Arkin v Marshall [2020] EWCA Civ 620; r. 55.29 Civil Procedure Rules 1998, as amended by r. 2(a)Civil Procedure (Amendment No. 2) (Coronavirus) Rules 2020 SI 2020/582.

[4] Hackney LBC v Okoro [2020] EWCA Civ 681.

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