Mortgage holiday & furlough problems to be ‘less severe than anticipated’ – full details
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Mortgage holders across the UK have been kept afloat by payment holidays in recent months. The FCA has confirmed that these holidays will not be extended beyond October but according to new data from lenders themselves, savers may have little to fear in the coming months.
According to new research from the Intermediary Mortgage Lenders Association (IMLA), the impact of the closure of the UK’s COVID-19 support schemes could be less severe than anticipated, with lenders expecting between 0.5 and five percent of borrowers coming off payment deferrals entering arrears.
Additionally, lenders expect a further 1.5 percent of borrowers on payment holidays to be able to make interest only payments.
This could mean that a large majority of borrowers are likely to successfully return to repaying their mortgage.
Additionally, analysis of projections from the Bank of England shows that the number of furloughed workers is expected to drop to one million in October, which is much lower than the 9.4 million employees registered in June.
This fall is attributed to the reopening of the economy and employers now having to meet some of the costs of the furlough scheme.
While this all bodes well, the same research acknowledges that the real impact of the coronavirus crisis will only be fully known once the support measures close in the coming months.
Kate Davies, an Executive Director of the Intermediary Mortgage Lenders Association, provided the following comments along with the research: “There have been some major concerns that Britain’s economy and the mortgage market could face a cliff edge when the furlough and payment holiday schemes conclude at the end of October, but this latest report from IMLA suggests that the impact might be less severe than anticipated.
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“The mortgage market has remained strong and resilient in the face of COVID-19, and figures suggest that most borrowers will return from payment deferrals with little or no difficulty.
“The Government’s latest measures to cut Stamp Duty are also likely to have sparked further demand in the housing market.
“That said, the UK’s economic recovery from Coronavirus is still far from assured.
“While the Stamp Duty exemption will provide a boost, the Government will need to be aware of the risk of another potential cliff edge for the housing market next March and they may even want to consider extending or phasing out the Stamp Duty holiday.
“Lenders are also well aware of the challenges facing consumers across the country, including first-time buyers, and they are eager to return to high loan-to-value mortgages as soon as it is prudent to do so.”
Rishi Sunak and the wider government have detailed several times that their various support measures cannot continue indefinitely and that sentiment was recently shared by the FCA.
The financial regulator detailed that while additional support will be provided for struggling mortgage holders, mortgage holidays themselves will not be extended.
As they confirmed this week: “The FCA’s current guidance published in June will continue to provide support for those impacted by coronavirus until 31 October 2020 – with consumers able to take a first or second three-month payment deferral until this date.
“The June guidance is due to expire on 31 October and we do not intend to extend this guidance.”
In early July, the Chancellor of the Exchequer also confirmed the following on the furlough scheme in his “A Plan for Jobs” speech: “Furlough has been a lifeline for millions, supporting people and businesses to protect jobs. But it cannot and should not go on forever.
“I know that when furlough ends it will be a difficult moment.
“I’m also sure that if I say the scheme must end in October, critics will say it should end in November.
“If I say it should end in November, critics will just say December.
“But the truth is: calling for endless extensions to the furlough is just as irresponsible as it would have been, back in June, to end the scheme overnight.”
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