Brokers have been sharing their concerns that some lenders are penalising borrowers who have taken up payment holidays or made use of government support schemes.
The FCA has previously stated that payment holidays and partial payment holidays offered under its guidance “should not have a negative impact on credit files”.
However, at the time the watchdog urged borrowers to “remember that credit files aren’t the only source of information which lenders can use to assess creditworthiness”.
Impact Specialist Finance managing director Dale Jannels says he is beginning to see signs of payment deferrals leading lenders to reject cases, warning this is “just the start” of what could be a substantial issue in the future.
Jannels reports a recent case where the lender rejected a buy-to-let borrower’s application, stating “the credit search now shows [the client] has current or recent late payments on 3 x mortgage items”.
He says: “I have been concerned that this would be an issue from day one.
“Before the crisis, we had some issues with lenders allowing one payment holiday and subsequent mortgage applications.
“It won’t necessarily affect credit scores as such but will affect the client’s overall ability to borrow based on their mortgage payment history and especially with decisioning systems being involved.
“Some systems/lenders will see this as three missed mortgage payments, which is as per today’s example.
“Many clients took the payment ‘holiday’, some when not needed, and may regret their decision.
“I hope I’m wrong, but I suspect that this will be an issue moving forward whilst we get used to the ‘new normal’, and it will be dependent on the lender that is chosen and their system’s ability to decipher the difference between a payment holiday and a true missed mortgage payment.”
Lentune Mortgages Stuart Gregory says he is worried about how lenders are looking on clients who have made use of self-employed support or business loans during the Covid crisis.
He says: “My concern is that currently lenders are not being open with brokers about how they are dealing with applicants who are self-employed.
“Lending policy on furloughed PAYE employees seems transparent in most cases, but with the self-employed we have seen several circumstances for sole traders where simply accessing the self-employed income support scheme has been a trigger to decline a case after accepting it at the beginning of the process.
“Some lenders seem to be accepting cases on the principle of having a ‘wider assessment upon submission’ but we need greater clarity – is it better therefore to have a straightforward policy, such as ‘if you or your business has accessed government financial assistance, we will require sight of three months of business bank statements at normal levels before considering an application’?
“Not providing this clarity means applicants are feeling misled, the broker’s performance is questioned.
“If there was more honesty from lenders at the beginning of the process, this time wasting could be avoided with better outcomes for the client.”
Mesa Financial director James McGregor says: “With everything happening so fast, the country was not aware about the full effects this would have on their businesses.
“I believe savvy directors did all they could to protect the cash in their business and if not increase this cash holding to protect the business itself. “We have worked with numerous companies that have borrowed money as a precaution with the full intention to pay the funds back as soon as they are able to operate again.
“This has allowed them to sleep comfortably at night and protect jobs.
“If a lender is penalising someone for this it just sounds absolutely ludicrous.”
Brunel Mortgages director Rob Derry says that buy-to-let and specialist lenders are asking lots of questions about borrowers who have taken up a payment holiday if they are applying to borrow more for further property investments.
He says: “In the last couple of weeks we have had applications where people have taken holidays and lenders are asking ‘why did you take the holiday? Can you provide us with other evidence of how your income was impacted what other resources did you have available to you?
“I think they are just trying to work out whether borrowers took a holiday when they didn’t really need it.”
