It will have come as a welcome relief to many when Chancellor Rishi Sunak announced that mortgage lenders would offer a three month mortgage payment holiday to borrowers.
This move is intended to help those affected by coronavirus and struggling to meet their monthly mortgage payments. Payment holidays can be applied for at any time before the government’s guidance is reviewed, which is set to be in three months’ time. Whilst this is simply guidance and there is no obligation on lenders, they are strongly encouraged to assist. It appears that most banks have decided to offer customers the opportunity to apply for a payment holiday and in addition, some have waived fees for missing payments.
A payment holiday allows you to agree with your lender to suspend mortgage payments for a set amount of time. Mortgage holidays are not automatic and have to be applied for and approved by the individual lender. Depending on your lender, this can either be done by phoning them, making an online application or via online banking. Many banks are experiencing a high volume of calls, so initially, you may want to attempt an online application or use your online banking facility.
Instead of taking a mortgage holiday, most lenders can also discuss other options for payments, such as switching your mortgage to an interest-only mortgage, switching to a new rate to reduce the mortgage payments or extending their mortgage term.
Looking to the future, once the payment holiday ends, standard mortgage repayments will resume. However interest will continue to accrue on the amount that you owe, which will mean that you will pay more for your mortgage over time. It will also mean that you will have to make up those missed payments. This can be done by increasing monthly repayment amounts or by adding an extension to the term of your mortgage. If this would increase the repayments to such a degree that you are unable to pay them, this is a conversation you can have with your lender to see if there are any other ways to make the extra payments. Additionally, the Financial Conduct Authority has provided guidance to lenders to ensure that taking a payment holiday does not negatively impact your credit score. See https://www.fca.org.uk/consumers/mortgages-coronavirus-consumers
Mortgage holidays are a very welcome relief to many who require the assistance in these uncertain times; however - clients must think carefully prior to applying for any of the options available to them and further ahead to the future as to the implications this will have.