Covid-19: Mortgage payment problems

Emergency measures introduced to protect homeowners facing payment problems during the coronavirus (COVID-19) pandemic.

This content applies to England

Protection from eviction

Mortgage borrowers were protected from eviction during the coronavirus pandemic. These restrictions have now been lifted and lenders can bring and enforce possession claims.

Guidance  from the Financial Conduct Authority stated that possession orders could not be enforced by issuing a warrant before 1 April 2021.

The ban applied to all possession claims where the borrower had not expressly agreed that the proceedings should continue.

The ban did not prevent a lender from issuing a claim or obtaining a possession order.

Regulations banning eviction before 31 May 2021[1] applied to borrowers as well as tenants.

Claims on insurance policies

Borrowers facing a reduction in income due to the coronavirus pandemic, for example 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.

Mortgage 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, with existing payment deferrals to run until 31 July 2021.[2]

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.[3]

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.[4]

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 payment break 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.

When a lender agrees to the payment break, the deferred monthly instalments are usually added to the mortgage balance using a process known as ‘capitalising’. This means:

  • more interest is 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 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. It is in a 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 FCA Guidance for borrowers explains 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. The FCA ban on repossessions, meaning enforcing a warrant of eviction, has been extended to 1 April 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 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 is breached if the contractual monthly instalment is not paid.[5]

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.

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

Financial Conduct Authority rules

The Mortgage Conduct of Business Rules have not been updated to include coronavirus specific guidelines. The FCA statement on the impact of coronavirus 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 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 from the Ombudsman.

Previous stay on possession claims and reactivation of proceedings

The general stay on possession proceedings ended on 20 September 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.[6] Initially, the stay applied from 27 March 2020 until 25 June 2020, and was later extended until 23 August 2020.[7]

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

Covered by the stay were:

  • applications to enforce a possession order by a warrant or writ

  • appeals of possession orders[8]

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.

New possession claims

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.

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.

If the borrower was unable to attend a hearing and a possession order has been made, the order could be set aside.

Last updated: 3 September 2021

Footnotes

  • [1]

    reg 2 The Public Health (Coronavirus) (Protection from Eviction) (England) Regulations 2021 SI 2021/15; The Public Health (Coronavirus) (Protection from Eviction) (England) (No. 2) Regulations 2021; as amended by The Public Health (Coronavirus) (Protection from Eviction) (England) (No. 2) (Amendment) Regulations 2021 SI 2021/362.

  • [2]

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

  • [3]

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

  • [4]

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

  • [5]

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

  • [6]

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

  • [7]

    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.

  • [8]

    Hackney LBC v Okoro [2020] EWCA Civ 681.