Mortgage Payment Holidays have become the biggest buzz words in the mortgage market after the Governments promise that all borrowers will be able to have a three-month mortgage payment holiday if they need it.
Whilst the majority of lenders have said that they will abide by it and are keen to be able to look after their borrowers during this time of need, as usual though, there is not always clarity or consistency.
There are also a couple of key things to note which could save you some anguish in the months ahead.
We have taken the time to look through as much of the information as possible as well as constantly keeping in touch with lenders as they develop their response.
We felt it important therefore to try to summarise what they are, what lenders are doing and who can access this important assistance.
What is a Mortgage Payment Holiday?
Quite simply, mortgage payment holidays are an agreement entered into with your bank, building society or mortgage lender to defer your monthly mortgage payments for a set period. In this case, 3-months.
It does not mean you never have to pay the amount back, but the interest you defer is added back onto the loan amount whilst your capital balance will not decrease. In other words, your mortgage amount will increase slightly, and you will continue to attract interest on the whole amount.
When you are ready to continue the payments, this could mean that either your monthly payments are recalculated at a slightly higher level or your mortgage term is increased slightly. Most lenders will probably prefer not to extend your mortgage term as this could take you past their standard retirement ages, but the detail on this will follow in due course.
Dependent on your mortgage deal you may be able to pay off a lump sum later on in the year to bring your mortgage back to where it would have been.
Mortgage Payment Holidays are available both for those with residential or Buy-to-Let mortgages, which means landlords also have assistance if rental payments are affected.
What is the Government Proposal?
The full proposal is in detail below:
- Mortgage lenders will offer an automatic 3-month mortgage payment holiday for customers impacted, directly or indirectly, by COVID-19
- The mortgage payment holiday will apply to customers who are up to date on their payments, not in arrears, and wanting to self-certify that they are impacted by COVID-19
- This means that lenders will not complete an income and expenditure assessment, or an assessment of alternate payment options as ordinarily required under MCOB
- This proposal will allow lenders to be more responsive to customer needs and offer forbearance in a simple way to customers in an environment where the operation of collections teams made be also impacted by COVID-19
- Customers will be made aware that interest will accrue in the holiday period and they will need to make up deferred payments in the future
- Customers who wish to undertake a full assessment of their ability to pay or financial difficulty may still do so.
Mortgage Payment Holidays: How do I apply?
For all Mortgage Payment Holidays, we would recommend speaking to your adviser in the first instance and not automatically looking to take a holiday if the situation is not pressing. Lenders will be inundated with calls and must be free to deal with the most urgent matters first.
We will help go through your circumstances and see if there are any other options available to you.
For a customer, up to date with payments, not in arrears and impacted by COVID-19:
- the customer would contact the lender and inform them that they are impacted by COVID-19
- the lender would accept these details from the customer and offer an automatic 3-month mortgage payment holiday
- no evidence will be sought from the customer
- the lender makes the customer aware that interest will accrue and will be contacted at the end of the three months to complete an assessment of the customer’s circumstances
- at the end of three months, an arrangement to pay will be agreed with the customer according to their circumstances to recover any shortfall, while ensuring that the mortgage remains affordable and sustainable
- the lender notifies the customer that if they wished to complete a full assessment now, there may be other forbearance options more suitable to the customer.
Mortgage Payment Holidays – What does this mean for my Credit Score?
Usually, mortgage payment holidays can show up on your credit score as a negative mark, but most lenders have now said that for cases linked to the virus they will ensure that this is not the case.
It is important you ask this question to your lender directly and record the response, including the date and the name of the person you are speaking to to avoid confusion later. Different lenders are doing different things.
Will I still be able to remortgage or take a Product Transfer with my lender?
This is perhaps one of the most controversial elements that has emerged over the last few days. There is now evidence to suggest that lenders are asking borrowers not to make any changes to their mortgage whilst within the mortgage holiday period, so they are not allowing remortgages or even product transfers during this time.
In other words, borrowers approaching the end of their existing product may be forced to move on to the higher lenders variable rate.
This could mean that many borrowers who act too early could well find themselves on a mortgage payment holiday that accrues interest on a more expensive variable rate.
We would highly recommend you speak to your adviser first to determine the best course of action. If possible, arranging your mortgage transfer first then asking for the holiday would seem to be the most sensible way forward.
What “Other Options” are available?
There are a few other options available, with some lenders offering a temporary switch to interest-only in order to reduce the monthly payments drastically but not to add any further to the loan amount by still servicing the interest payments each month.
It may not be necessary to convert all your mortgage to interest only and it may be that putting part of the mortgage on this basis could give you the breathing space you need.
Those with savings may find that remortgaging onto an offset basis could give them a helping hand, by reducing their monthly payments whilst keeping their savings intact.
For example, someone with a £400,000 loan and £100,000 in savings would only pay interest on £300,000 reducing their payments accordingly.
For others, a straight remortgage to another lender, calculating the cost of any Early Repayment Charges, may well be enough to ease the burden or simply extending the term of your mortgage.
To discuss any of these options, or to just have a helpful chat about your current situation please contact us here…