5th Apr 2020|News|Sales|

Covid-19 mortgage payment holiday’s explained

HOMEOWNERS facing a drop in income won’t have to make mortgage repayments for three months, thanks to a new measure by the Chancellor.

To help families struggling to stay on top of their repayments as Coronavirus takes its toll on household income, Chancellor Rishi Sunak said that lenders will offer a three-month mortgage holiday.

Days later, he went a step further to include mortgages on investment properties. That means landlords with tenants who are unable to meet rental payments because of coronavirus are protected, for a time.

Here’s what you need to know about the Government measures.

 Who should consider a payment holiday?

A mortgage holiday will ease concerns about loss of earnings if people are isolated for any period or if their working hours are reduced due to business closures.

The biggest beneficiaries are likely to be those who are self-employed or have little or no money set aside to help them through challenging times.

Most borrowers will choose not to take the holiday if they are able to avoid it, as delaying also extends the borrowing period, which isn’t normally a good idea unless it is really essential.

This new option should only be used by those who simply can’t meet repayments because of the crisis and need the breathing space to stabilise their finances.

Is the payment holiday automatic?

No. Borrowers need to speak to their mortgage lenders directly to arrange the holiday – including those who arranged their home loan through a broker. It is important to do this as soon as you think you have a problem. Many of the major banks now have information on their websites about coronavirus measures for customers. Be patient as it might take a while to get through, depending on call volumes. You will need to explain your situation and why you need the three-month break.

Do not just cancel your mortgage direct debit, you need to get the payment holiday approved.

Will missed payments affect my credit rating?

A missed payment agreed with their bank or building society will not create a blemish on your credit profile. It’s crucial you speak to your lender to get the repayment break agreed, or it will register as a defaulted payment.

What will happen to the “extra debt” owed from the missed months?

During the payment holiday, the interest that would have been paid will still rack up, and the capital sum of the loan remains – it does not get wiped off the account.

It might mean that your monthly repayments in the future will be slightly higher than before if you want to pay off the mortgage in the same time period.

Check carefully with your lender about how it will work.

Are lenders ok with being forced to do this?

Lenders will reduce the risk of having ‘bad debt’ on their books if customers miss payments without taking a mortgage holiday, which can reflect poorly on their business and make it harder to raise finance in future.

However, a mortgage holiday may not be the best option if when your payments return to normal after the three months are up and you’re still unable to make the payments. If your income has dropped and that is unlikely to change, they may offer you other alternatives, such as changing your mortgage to pay a smaller amount each month.

Might the period get extended?

The banks insist the payment holidays are not a long-term solution but are designed only for a temporary income shortfall.

However, things are changing quickly from day to day, so we can’t rule out an extension or new measure to help cash-strapped homeowners.

What about a mortgage holiday for landlords?

The three month mortgage holiday has been extended to landlords whose tenants are experiencing difficulty paying.

However, UK landlords are still facing the cost of a buy to let mortgage without the rental income to pay it.

The government also announced that they would suspend new evictions and halt new possessions proceedings to the court while the Coronavirus crisis persists.

I need to remortgage – is that possible now?

The Bank of England already put forward two rate cuts to reduce the base rate to 0.25% at first and a week later to a record low of just 0.1%. For homeowners and landlords, this is likely to mean that the low interest borrowing for the foreseeable future.

Why not give us a call to discuss your current mortgage circumstances and to see if alternate mortgage options are available to you. We offer fee free mortgage advice and a no obligation mortgage review.