Borrowing Holidays: Nationwide boss says credit records should show mortgage holiday extensions

June 24, 2020

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2 min read

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What's going on here?

Nationwide CEO Joe Garner says that a borrower’s credit record should be marked with a temporary notice if they choose to take a further mortgage holiday in response to COVID-19.

What does this mean?

Mortgage holidays started in March in response to Coronavirus, allowing borrowers to defer payments without it affecting their credit rating. This holiday was due to end in June for the first applicants, but the Treasury and regulators are permitting a further three-month deferral for those still struggling with repayments.

The deferral extension is hoped to lessen the chance of a cliff-edge effect on repayments, which could occur if families face money problems as bad, if not worse, as they did in March. However, as this holiday is only a deferral, borrowers will still have to make up the delay with higher payments and accrued interest when it comes to an end. 

Nationwide CEO Joe Garner says that a temporary notice should be placed on the credit ratings of those who take a new mortgage holiday until their payments return to normal. This would alert lenders to the situation and prevent individuals taking out further loans which are not in their interest, but it would not impact people’s abilities to remortgage.

What's the big picture effect?

The word of the day is risk. Lenders use credit ratings to make decisions when granting loans and mortgages. With no knowledge of whether a borrower is struggling to make their payments, lenders cannot accurately assess the risk of lending. As the UK transitions out of lockdown, unpredictable policy changes and high uncertainty makes risk forecasting even more important for lenders.

Nationwide is the UK’s largest building society, and even it was already facing pressure on its profits before taking a ÂŁ101m hit as a direct result of COVID-19, with pre-tax profit in April falling by nearly ÂŁ400m from the previous tax year. With long-term uncertainty and already plunging profits, lenders are likely to be more cautious, as their own financial stability becomes increasingly at risk and liquidity becomes a concern.

Banking clients will be turning to law firms for help in navigating the rapidly changing regulatory requirements put forward by the FCA in response to COVID-19 and to ensure they are conducting themselves with proper professional diligence when dealing with borrowers who have taken a further payment holiday. Clients will also need legal support in planning for the end of the deferral extension and the steps they will inevitably have to take concerning borrowers who have defaulted.

Report written by Darinka Lipovac

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