Banks have approved nearly one million mortgage holidays for cash-strapped homeowners in lockdown who are struggling to meet their payments.
High street lenders will also be forced to slash overdraft and loan charges by the regulator.
Banks have been bombarded with requests to freeze mortgage bills after Chancellor Rishi Sunak said homeowners in difficulties could ask for a three-month payment holiday.
Lloyds, the UK’s largest banking group, has signed off 240,000 applications, while Santander has approved more than 110,000.
But major lenders, which received billions of pounds in taxpayer cash during the financial crisis in 2008, face pressure to do more to help those affected by the pandemic.
The Financial Conduct Authority (FCA) announced plans yesterday to require banks to introduce £500 interest-free overdrafts and credit payment breaks for three months.
They were due to introduce overdraft interest charges of up to 50 per cent from next Wednesday, but the FCA now says no one should pay more to go overdrawn for at least 12 weeks.
The proposals, which could come in next Friday, include ensuring customers with an arranged overdraft will be charged zero interest on up to £500, while customers without an agreed overdraft can request the same buffer.
Previous changes to overdrafts meant from April 6 firms could only charge one annual interest rate for arranged and unarranged overdrafts. But many providers pegged it at around 40 per cent – forcing costs to soar for those who stick to their arranged overdraft limit.
The FCA plans also mean customers can ask for a three-month payment freeze on credit cards, store cards and catalogue credit.
Sarah Coles, of the investment website Hargreaves Lansdown, said: ‘This will come as a huge relief to so many people.’
Stephen Jones, of the banking body UK Finance, said: ‘Lenders want to ensure customers are helped with their current circumstances and able to manage their borrowing when the crisis has passed.’