The mortgage industry has been reacting to news that the government plans to extend the payment holiday scheme by a further three months.

While commentators say the extension will be welcome news for struggling borrowers, they warn that many may not fully understand the potential consequences for their future ability to get credit and the overall cost of their mortgage.

Others have raised concerns about lenders’ ability to cope with increased communications with borrowers and their capacity to continue funding large-scale forbearance measures.

Phoebus Software sales and marketing director Richard Pike says: “The extension will be welcomed by borrowers, but the industry will need to manage another wave of borrower communication at a time when many lenders will have been working on recalculating borrower accounts.  

“A reduction in the amount of money coming in is an issue for any lender, but en-masse for a sustained period it could be a challenge for some, particularly those with securitised assets. 

“Whatever the government’s intentions, it could be that lenders will take a more detailed look at some borrowers applying for this new initiative.  

“They will need to ensure that only borrowers that genuinely require them are accepted for the scheme, or that other risks such as LTV are considered more closely.”

Hargreaves Lansdown personal finance analyst Sarah Coles says the news will be a huge relief for borrowers in difficulty, but warns: “It is not a ‘get out of jail free’ card, because there are three costs to consider.

“The FCA highlighted that while your official credit record cannot be affected by these breaks, this is not the only way firms decide whether to lend to you. 

“If you apply for loans in future, you may be asked whether you took advantage of the scheme – and how long for. So it could still affect your ability to borrow.

“There’s also an immediate financial cost – because these missed payments will have to be repaid too. 

“If you have £150,000 mortgage at 2.5 per cent with 15 years left to run, and you take a three-month break, your monthly repayments could rise £20 a month. 

“This doesn’t sound earth shattering, but it adds up, and you might pay around £1,750 more over the life of the mortgage. 

“More delays will mean more costs.

“If you extend your mortgage term by anything up to six months, you also need to consider the impact at the other end of the mortgage term. 

“This could mean you have to pay your mortgage even after you’ve retired, or wait an extra six months to stop work. 

“Alternatively, it could mean your mortgage remains a burden at a time of life when you hoped to prioritise other things – like your pension.”

Intermediary Mortgage Lenders Association executive director Kate Davies says: “As the industry tries to help some borrowers return from so-called payment holidays, it will also take time to reset their regular payments and discuss suitable and viable alternative options with them.

“This morning’s consultation paper from the FCA has extended the payment holiday window, but it has also recognised the importance of helping borrowers who can afford to make repayments to resume doing so as soon as possible.

“It is absolutely vital that borrowers understand that this scheme is for a payment deferral, not a cancellation. 

“While it can provide a lifeline to some borrowers by helping with short-term cashflow issues, the longer customers are on a ‘payment holiday’, the more interest will accrue on their mortgage – albeit at relatively small amounts as interest rates remain low.”

She adds: “Lenders are and will be making strenuous efforts to contact borrowers to discuss whether to commence or extend a deferral or their options for resuming repayments.  

“It is really important that borrowers respond to and engage with their lenders in this process to make sure that the right decisions are taken. “Although the government’s scheme has been extended by another three months, this window will go by quickly.”

Trussle head of mortgages Miles Robinson says: “It’s clear that mortgage payment holidays have proved a vital lifeline for those homeowners who are suffering financially as a result of the coronavirus pandemic. 

“However, it is not yet apparent what the long-term impact of the government scheme will have on both borrowers and the market.

“We have already seen a shift towards longer term mortgages to make monthly payments more affordable. 

“When comparing the first four months of 2019 and 2020, we saw 30 and 35 year mortgage term applications increase by 62 per cent and 82 per cent respectively. 

“Additionally, extra checks are coming into play for those applying for a mortgage. 

“For example, lenders might check whether you have been furloughed, or if you work in an industry that’s been highly impacted by coronavirus, such as hospitality or tourism.”