Revealed: Borrowers who took loan repayment ‘holidays’ after being told it wouldn’t affect their credit score are now struggling to obtain mortgages
- Banks in UK have rejected customers who chose to take breaks from repaying
- This is despite having been told by Government there would be no repercussions
- More than three million people made use of payment holidays amid pandemic
Borrowers who took loan repayment ‘holidays’ with assurances it would not affect their credit score are struggling to obtain mortgages, an investigation by The Mail on Sunday has revealed.
Banks have rejected customers who – after the Covid-19 lockdown began – chose to take breaks from repaying home loans, credit cards and car finance loans. This is despite having been told by the Government there would be no repercussions.
More than three million people – many on the furlough scheme – made use of payment holidays after the economic shock of coronavirus. Sources said borrowers who did so have since received initial confirmation of their credit worthiness when applying for new mortgages, only to be denied a loan after a more detailed analysis.
Banks have rejected customers who – after the Covid-19 lockdown began – chose to take breaks from repaying home loans, credit cards and car finance loans (file picture)
The situation has been confirmed by several sources, including one who said banks had been asking whether applicants took payment holidays or are on furlough, and viewing that ‘in a negative way’.
They could now be deemed more risky borrowers ‘than someone who continued paying their mortgage regardless,’ said another.
Another mortgage source said it was ‘reasonable’ for banks to take a dispassionate view rather than lend to someone whose financial position was now uncertain.
Campaigners have demanded an official investigation. Siobhain McDonagh MP, who sits on the Treasury Select Committee, plans to write to Chancellor Rishi Sunak. She said: ‘When the banks were in trouble, the taxpayer was there for them. Now the taxpayer is in trouble – it’s time the banks step up and live by their promises.’
James Daley, consumer champion at Fairer Finance, said banks were ‘flagrantly ignoring’ the regulator, the Financial Conduct Authority. He added: ‘The regulator put out a note telling companies they needed to provide that forbearance and it needed to not impact people’s credit score.
‘The lenders should be totally blind to these payment holidays – and should not have been marking them on people’s credit files.’
Borrowers were reassured by credit agencies, including Experian, and the Government that payment holidays would not affect their credit history.
Business secretary Alok Sharma said in March: ‘I think the advice that’s gone out is any changes need to be properly documented and it shouldn’t affect your credit score.’
Experian said at the time that credit agencies would ‘make sure that the agreement is reflected in your credit reports so that your score is not changed by any payment holiday you agree’.
A Treasury spokesperson said: ‘The watchdog has been clear that payment holidays should not have a long-term impact on people’s credit rating – and that where additional help is needed, lenders must be clear about the possible implications.’