Payment holiday and eviction pauses
I was recently surprised to learn what I thought was a well-known Chinese proverb, seen as part blessing and part curse, ‘May you Live in Interesting Times’ – has no real known origin. At best it appears to have stemmed from an erroneous translation from the 1930’s. Whilst the origin of the proverb may appear weak no one would dare argue that its proposition does not resonate today. 2020 has and remains ‘interesting times’.
Coronavirus has hit the world hard both in terms of the global health but also the financial wealth of each country’s economy. The UK has certainly been no different. We have all read the papers and know of friends, relations and business that are affected by the economic fallout from COVID-19.
The UK Government reacted to the country’s financial health by launching various schemes. We are aware of the Furlough Schemes to assist people being kept in employment but what about the populations biggest monthly expenditure being their mortgage or rent? Well the Government launched a number of schemes to assist people keeping a roof over their heads (in addition to reducing the spread of the virus) in these pressing times.
From the 26 March 2020 the pause button was pressed in terms of evictions through the implementation of the Coronavirus Act 2020 in relation to residential tenancies and through Practice Direction 51Z of the Civil Procedure Rules in relation to Staying all Part 55 possession proceedings. The schemes place a pause on such proceedings until 30 September 2020 and 30 October respectively. It remains to be seen if these dates will be extended. By pressing the eviction pause button landlords and lenders cannot get an eviction order and bailiffs will not be able to evict borrowers with trespassers to land being the exception.
In addition, the Government has brought in a three month ‘payment holiday’ in respect of mortgage lenders whereby their borrowers’ finances have been affected by the coronavirus. Whilst the three month payment holiday allows borrowers to take a break from their mortgage payments it does not pause the amount of interest that borrowers will pay on their loan with the likely effect that borrowers will have to repay the missed payments over the remaining mortgage term and in the short term after the holiday comes to an end monthly payments are likely to increase.
The mortgage payment holiday does not negatively impact upon the borrower’s credit score. The Financial Conduct Authority has confirmed that firms should not report a worsening status to credit agencies if a borrower takes a payment freeze. I guess the whole point of this was to ensure there is no long-term negative impact on the borrower’s credit file and that borrowers are able to get back on track at the end of their payment holiday.
Therefore, a payment holiday will not show up as a default and therefore should not be deemed arrears of mortgage. However, each lender may take into effect mis-payment or reduced payments in their decisions which may impact upon future lending decisions.
Indeed whilst many payment holidays have been authorised unfortunately there are borrowers who have simply not decided to speak to their lender and have decided to simply stop paying. Much will depend upon the lender’s view to these types of unauthorised payment holidays and there has been further discussion over whether a second payment holiday will send a warning to lenders that these borrowers are particularly struggling with their finances which should trigger an impact upon a borrowers credit file. At present the deadline for a mortgage payment holiday is the 31 October 2020.
As with most of 2020 and the coronavirus itself whilst there has been many steps and schemes in place to limit the impact upon health and finance I guess it is much too early to see how the impact of schemes such as payment holidays and the pausing of evictions will play out. At present there is a concern that following the end of the eviction pauses in Autumn (if not extended) and combined with the payment holidays coming to an end there is a real concern against the backdrop of further redundancies that these financial problems may just led to a be bottled neck which may explode towards the end of the year. Whatever happens we are certainly living in interesting times.