Banks deny loans to borrowers who took ‘payment holidays’

Banks said credit scores would not be hit – but reject borrowers who took a break in payments

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.

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.’

BORROWERS who took loan repayment ‘ holidays’ at t he height of the coronavirus crisis are struggling to obtain mortgages despite assurances the breaks would not affect their credit score.

Sources told The Mail on Sunday that banks were turning away customers who had taken payment holidays on home loans, credit cards and car finance, months after the Government and credit agencies said there would be no impact.

The sources said applicants could often get a provisional loan agreement from a bank, but were then rejected by the bank’s credit checkers over fears they were not reliable borrowers.

Business Secretary Alok Sharma said in March that banks had negotiated the rules around payment breaks with the financial watchdog, and that they would not affect a customer’s credit score.

He said at the time: ‘The FCA (Financial Conduct Authority) has talked to banks and lenders about this i ssue, particularly those who may need to delay payments on credit card bills. And I think the advice that’s gone out is any changes need to be properly documented and it shouldn’t affect your credit score.’

Credit agency Experian also reassured customers they would not be hit by taking advantage of the blanket payment freeze.

Jonathan Westley, chief data officer at Experian, said in a statement in March: ‘Many lenders are offering payment holidays or other arrangements to help people who have been affected by the outbreak.’

He said Experian – and also credit agencies TransUnion and Equifax – ‘will then make sure that the agreement is reflected in your credit reports so that your score is not changed by any payment holiday you agree’.

But now many customers are struggling months later as they try to take out a mortgage or remortgage with a new lender.

One mortgage industry source admitted questions were being raised about those on Government support schemes, saying: ‘Banks are asking if people have taken a payment holiday or if they are on furlough.’

Another said: ‘It’s reasonable that people looking to remortgage, or switch their mortgage will be asked if they have maintained payments or if they have missed any payments. Individual lenders might look at that in a negative way as a potential new borrower. They will say, “Well, this person chose to take a payment holiday, did they do it because they needed one, or because they were lazy?” That person might be less of a good risk than someone who continued paying their mortgage regardless.’

But Siobhain McDonagh MP, who sits on the Treasury Select Committee, said: ‘ When t he 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.

‘If they promised it wouldn’t have an impact on your creditworthiness, you generally expect the Government to tell the truth. When the banks weren’t processing loans to businesses, the Government was certainly in a position to put pressure on the banks, and you’d hope they do that for individual homeowners.’

McDonagh plans to write to the Chancellor raising the matter this week.

Banking lobby group UK Finance said lenders would consider a ‘range of factors’ before approving a loan. It has urged consumers to consult their bank before taking a payment holiday.

A UK Finance spokesperson said: ‘Under FCA rules lenders must lend responsibly and consider the affordability of the mortgage or loan in the long term. It would not be in the customer’s interest to lend more than they can reasonably afford.’ A Treasury spokesperson said: ‘ The FCA 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.’

But consumer experts said customers should be able to get payment holidays deleted from their credit histories. James Daley, at Fairer Finance, said: ‘At the beginning of the crisis, it was an incredibly uncertain world and I don’t think it would have been wrong to take a payment holiday. The lenders should be totally blind to these payment holidays – and lenders should not have been marking them on people’ s credit files.

‘I don’t see why they can’t put that right, it’s not impossible to change credit files when companies make mistakes.’

Have you been rejected for a mortgage after taking a loan repayment holiday? Contact: helen.cahill@mailonsunday.co.uk