The coronavirus pandemic is changing everyday life for people around the world, and the UK is no exception. Uncertainty around income is widespread and, where there’s national money trouble, the Financial Conduct Authority (FCA) won’t be far behind. To help relieve some of the pressure bearing down on consumers, the FCA has published guidance that lenders must follow to ensure their customers are financially protected.

The supportive measures are initially valid for three months, but they will be reviewed later to determine whether they should remain, be amended, or be lifted entirely. All lenders regulated by the FCA must comply with the guidance or face potential fines.

Note that the FCA has stressed that these temporary measures apply only to those experiencing financial difficulty due to the coronavirus, either directly or indirectly. The FCA has defined customers eligible for this support as those who are “experiencing or reasonably expect to experience payment difficulties as a result of circumstances relating to coronavirus”.

While these measures will undoubtedly be appreciated by many in the short-term, what often goes unnoticed (until far too late) is what they can mean for your finances long-term. Most notably, how traditional payment holidays might, for example, damage your Credit Report and, in turn, your ability to take out further credit later.

With all that in mind, we’ll take a look at the help offered by the Financial Conduct Authority and whether any of it could carry nasty consequences for your Credit Report.

Mortgages

Payment Holidays

Perhaps the most widely known form of help for borrowers during the pandemic is the mortgage payment holiday. Essentially, a payment holiday is an arrangement with a lender to miss payments (or make a token £1 payment) for an agreed period of time.

The FCA has stated that any customer who believes they are struggling to keep up with mortgage payments due to the coronavirus must be offered a three-month payment holiday – unless the lender can demonstrate that it’s in the customer’s best interests not to take one.

There is no enforced limit for how long a payment holiday can last, so any particularly generous lenders could offer holidays for longer than three months – but lenders voluntarily extending the holiday is unlikely to happen outside of the most serious of circumstances.

Payment holidays themselves are nothing new, as lenders have offered them to eligible customers in the past, but the recent volume we are seeing is unprecedented. To put the number of recent mortgage payment holidays in perspective, Halifax (easily one of the UK’s largest mortgage lenders) has confirmed that the surge in requests for these holidays is the sole reason that they are left with a shortage of ‘processing power’ to approve new mortgages, resulting in them flat-out refusing mortgage applications with loan to value of over 60%.

Payment holidays, while beneficial in the short-term, do carry some consequences long-term – and these costs are considered “not to be inconsistent” with the FCA’s guidelines, so be warned. Most notably, you are still required to pay the amount owed over the payment holiday, just at a later date. With payment holidays, it’s more accurate to think of them as deferred payments rather than no payments at all. You will also accrue interest on the outstanding mortgage balance each month, as normal, so if you go three months without making any payments, you will see a higher outstanding balance and higher monthly payments once your holiday is over.

It should also be noted that payment holidays have been known to hurt borrowers’ Credit Reports in ‘normal’ circumstances. This means taking a mortgage payment holiday could damage your ability to obtain further credit later on. In these exceptional times though, the FCA has confirmed that any payment holidays offered in line with this guidance must not be recorded negatively on customers’ Credit Reports. The FCA states “there should be no negative impact on the customer’s credit file because of the payment holiday”.

Repossessions

There’s a lot of concern around home repossessions in the face of Covid-19, but thankfully the FCA has published some clear-cut rules on the matter.

The FCA has confirmed that repossessions are not to commence or continue for the time being. As repossessing residential properties would breach FCA guidelines as well as government advice on social distancing and self-isolation, the FCA has said it will enforce the temporary ban on repossessions without hesitation.

Normally, repossessions can damage your Credit Report quite severely, but the FCA has not confirmed (like they have with payment holidays) whether repossessions during this period will be recorded on Credit Reports. As new repossessions are unable to commence, it is unlikely that a corresponding marker will be added to your Credit Report until the process is underway – but it’s best to check directly with your mortgage lender to ask how they plan on reporting the repossession, as this will likely depend on your lender’s reporting policies.

Personal Loans and Credit Cards

Payment Deferrals

Credit card and personal loan lenders are to permit payment deferrals for customers affected financially by the coronavirus. The FCA considers ‘personal loans’ to include both secured (excluding property) and unsecured credit agreements, car finance, and overdrafts, among others.

Any credit agreements that fall within these criteria will be considered personal loans for the purpose of the FCA’s supportive measures, which are primarily payment deferrals. Payment deferrals are similar to mortgage payment holidays in practice, but are usually for smaller balances. These payment deferrals also last for three months and have been available from 14 April 2020.

Customers with payment deferrals can avoid paying for three months, but interest will still be accrued on outstanding balances. The total amount owed will need to be paid back eventually, so you will likely see higher monthly payments once the deferral has finished, unless the term is extended.

If you believe you’d qualify for payment deferrals, make sure to check with your lender directly. Simply stopping payments without talking to your lender for their confirmation will likely land you in hot water, whether you are eligible for the deferral or not.

Payment deferrals usually hurt your Credit Report (as they’re recorded as an ‘Arrangement to Pay’, a severe negative marker), but the FCA has again confirmed that any payment deferrals relating to the coronavirus must not damage customers’ creditworthiness.

How does the FCA enforce their rules?

The above guidance that the FCA has set out for lenders is expected to be followed unanimously and voluntarily, otherwise the new rules may be enforced against any organisations found to be in breach of them.

The FCA can enforce rules by taking away an organisation's authorisation; issuing fines; applying for court action (such as injunctions and insolvency orders); and suspending individuals from undertaking regulated business. The FCA is by no means afraid to exercise their powers, having issued nearly £400 million in fines in 2019 alone. This information is publicly accessible, so you can see exactly which companies are found breaching FCA regulations.

The FCA has stressed that each of these measures builds upon a pre-existing requirement (Principle 6) that regulated firms already follow, namely that they “must pay due regard to the interests of customers and treat them fairly”. Any companies ignoring this established principle may find themselves hit with a heavy fine.

Can my Credit Report be affected?

Normally, if you miss payments, enter arrears, or take a payment holiday, you’ll find corresponding harmful markers on your Credit Report that damage your Credit Score. This is because lenders are required by law to report accurate information to the Credit Reference Agencies.

In these exceptional times though, the FCA has said that any payment holidays or deferred payments must not be recorded punitively on customers’ Credit Reports. As long as your lender has confirmed that you qualify for a payment holiday or deferred payments, then you shouldn’t need to worry about any negative information being lodged against you for the duration.

That said, it’s well worth monitoring your Credit Report to ensure your lenders report information correctly. Errors are rare, but they do happen – and new rules and increased pressure and demand on lenders might make them more susceptible to slip ups.

It’s important to note that you can only safely assume that your Credit Report will remain untainted if your lender has acknowledged that your payment holiday or deferred payment period has started. If you miss payments outside of an officially recognised deferred payment period, you’ll likely wind up with negative markers recorded on your Credit Report.

The key is to communicate with your lender. If you’re concerned about your ability to keep up with payments (due to coronavirus or otherwise), it’s best to contact them directly to come to a solution that suits your needs.

To sum up

• The FCA is requiring mortgage, credit card, and personal loan lenders to offer three-month payment holidays (payment deferrals) to customers who have experienced reduced income due to the coronavirus
• These relief measures should not damage your Credit Score or Credit Report
• But you will still have negative information lodged on your Credit Report if you are outside of these agreed relief measures when missing scheduled payments
• Contact your lenders if you have any questions about your repayments
• Property repossessions are suspended for the time being, including any that are currently underway
• The FCA will enforce these rules upon lenders if needed, using their existing regulatory powers

How to check your Credit Report

If you’re planning on monitoring your Credit Report to keep an eye on the information that your lenders are reporting about you, you can check your Multi Agency Credit Report – the UK’s most detailed service with complete data from Equifax, Experian, and TransUnion. You can try checkmyfile free for 30 days, then for just £14.99 per month. You can cancel easily online at any time.