Embargoed to 0001 Saturday November 09 File photo dated 19/01/16 of terraced houses. Rising property costs have increased inequality as the poorest families have borne the brunt of the housing crisis, according to a think-tank. PA Photo. Issue date: Saturday November 9, 2019. The Resolution Foundation urged political parties to recognise in their election pledges that tackling the housing crisis requires action to help lower-income families who have been at its sharp end in recent years. See PA story POLITICS Election. Photo credit should read: Dominic Lipinski/PA Wire
A payment holiday offers a reprieve, but the money is still owed and interest continues to accrue © PA

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Banks and mortgage lenders are trying to discourage customers from taking advantage of a government offer of mortgage “holidays”, warning that unclear advice from the chancellor and regulators risked pushing customers into more debt.

Rishi Sunak announced last week that banks had agreed to give three-month payment breaks to anyone affected by the coronavirus pandemic, but lenders and trade body UK Finance are still pushing for better guidance on how to implement the pledge more than a week later.

The chief executive of one mortgage lender said the Financial Conduct Authority’s existing advice “flies in the face of every bit of regulatory guidance ever . . . [customers] are just piling up more debt for later. We’re trying to tell people if you can make a payment, even half, that’s better for you.

“The big worry is because the guidance wasn’t clear, people will just cancel their direct debits,” the executive added.

The FCA told banks on Friday that they should give holidays to any customer who said they “may experience payment difficulties”, and said lenders were not expected to investigate “the circumstances surrounding a request”.

However, Eric Leenders, managing director for personal finance at UK Finance, said there were several options that should be considered before asking for a payment holiday, such as reducing monthly payments or switching to an interest-only arrangement. 

“Under a payment holiday, the money is still owed and interest continues to accrue, so if customers can still afford to pay something they should consider other options with their lender that allow them to do this,” he said.

The FCA declined to comment. But one person familiar with its advice to lenders said the regulator would allow them to check whether a mortgage holiday was really needed.

“Although the guidance says no investigation is required . . . it also says that a firm may decide to look at the individual circumstances of the case to see if a different option is appropriate and in the best interests of the customer,” the person said. This can include having “individual conversations with customers” to establish their true financial position, they added. 

Several banks said they had already seen a substantial increase in calls from concerned borrowers, which made it difficult to have in-depth conversations with every customer.

Yorkshire Building Society, the country’s third-largest building society, told customers on Tuesday that its phone lines were “exceptionally busy” and said they “should only call if they are worried about meeting their next mortgage payment”.

A senior executive at one high street bank said it was “saying yes across the board” to requests, and trying to automate the process to avoid overwhelming its call centres.

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