‘I was refused a mortgage for taking a loan holiday’: City watchdog tells banks they CAN reject loans if you took break
- Fury as firms get green light to trawl through borrowers’ accounts
- Over 1.8m people who took breaks were told it wouldn’t affect credit record
- 59% of brokers have had clients rejected for a home loan due to a break – survey
The City watchdog has quietly given banks the green light to deny mortgages to customers who have taken loan holidays during the Covid-19 pandemic, The Mail on Sunday can reveal.
More than 1.8million people who took payment breaks were told by the Government that it would not affect their credit records.
But the MoS has found that the Financial Conduct Authority is allowing banks to inspect account data to work out if someone took a payment break.
Rejected: Lisa Welcome was refused a mortgage for taking a loan holiday
Sources said regulators had given banks clearance on a conference call to use this information in their lending decisions. NatWest is also understood to require brokers to disclose payment holidays in a box on mortgage application forms.
The MoS has obtained evidence from customers that banks are giving ‘mortgage holiday’ as a reason for rejecting customers – despite being reassured by Business Secretary Alok Sharma in March that payment breaks would not affect someone’s creditworthiness.
A survey by Mortgage Solutions magazine has found that 59 per cent of brokers have had clients rejected for a home loan due to a payment holiday or help from a Government support scheme.
Lisa Welcome, 45, was rejected by NatWest when she applied for a home loan after taking a payment holiday. Recently divorced, she wants to remove her ex-husband’s name from mortgage documents.
A court has ordered her to remove his name by August 19 or face putting her home on the market. She said all her credit checks came back fine and her bank statements showed her earnings had not dropped during lockdown. But she was declined because she took a three-month holiday from her current lender Nationwide.
Jenni Harland, of NatWest Intermediary Solutions, said in a letter to Welcome’s broker: ‘The mortgage application for the above client has been assessed and unfortunately we are unable to lend based on the information that you have supplied.
‘The reason for this is insufficient income to service the level of facility sought, as the applicant has had a recent mortgage holiday and affordability is not met.’
NatWest declined to comment on her case. But Lisa, a cake decorator from Birmingham, said: ‘It’s really annoying. I was told it wouldn’t affect my credit scoring, so I took the holiday just to be on the safe side with Nationwide, only to be penalised by NatWest for it.’
Nationwide admitted payment breaks are ‘taken into consideration’ when assessing if someone can afford a loan, but said it would not refuse solely for taking a break.
NatWest said: ‘We do look at bank account information as part of assessing the affordability of mortgage products but we are not declining applications simply because someone had a payment holiday.’
Siobhain McDonagh, an MP on the Commons Treasury select committee, has written to Chancellor Rishi Sunak
HSBC said a payment holiday ‘would not have a bearing’ on a loan decision. Lloyds said it was not using any data to work out whether someone has taken a payment holiday as part of lending decisions.
Barclays said a payment break does ‘not impact the likelihood’ of being approved for a mortgage.
Siobhain McDonagh, an MP on the Commons Treasury select committee, has written to Chancellor Rishi Sunak, saying: ‘It was insisted by the Government there would be no repercussion for those who used these schemes. I would be grateful for your comments…as to why there are repercussions when it was pledged there would not be.’
A Treasury spokesman said the FCA was clear that payment holidays should not have a long-term impact on people’s credit rating.
An FCA spokesman said lending is a decision for firms based on their credit risk appetite, adding: ‘Lenders may use sources other than credit files, such as bank account information, to take account of other factors. These could include changes to income and expenditure and any increased indebtedness as a result of interest accruing during the payment holiday.’
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