British mortgage borrowers will be allowed to skip payments for three more months as regulators aim to ease coronavirus-driven stress on the economy.
Simultaneously, the Bank of England signaled that banks have leeway not to mark these mortgages as bad loans. More than a million Britons have opted to delay their payments after the government imposed a lockdown to contain the pandemic, throwing many out of work and leaving small-business owners struggling to stay afloat.
“Where consumers can afford to re-start mortgage payments, it is in their best interests to do so. But where they can’t, a range of further support will be available,” Christopher Woolard, interim chief executive of Britain’s Financial Conduct Authority, said in a statement Friday. “People who are struggling and have not had a payment holiday will continue to be able to apply until 31 October.”
The original so-called payment holiday started in March and was set to end next month. The British state’s response to the crisis has aimed to soften the blow to people whose income has been interrupted, while also making sure the banks are able to keep credit flowing. Regulators are concerned that taking large provisions for impaired loans could inhibit the ability of lenders to support the economy.
The Bank of England said the payment holidays should not “automatically result” in a loan being marked as credit-impaired. “This will involve careful judgment as payment deferrals may be granted without the lender collecting detailed information about the circumstances of the borrower,” the central bank said in a statement.
People familiar with the matter have previously said that the banks and regulators discussed the possibility of the payment holidays ultimately lasting as long as a year and a half. Borrowers will see skipped payments added to an extension of their mortgage term, while interest will keep accruing during the period of non-payment.
“We are already proactively contacting our customers who will be reaching the end of their repayment holidays to support them in restarting their payments,” said Vim Maru, retail director at Lloyds Banking Group Plc. “For those who may continue to be financially impacted, we will offer a range of support based on their current financial circumstances.”
The extension echoes the recent lengthening of Britain’s furlough program, where the state pays a portion of salaries to avoid layoffs, hoping that employers will be healthy enough to take staff back after the crisis subsides.