Mortgage payment holiday advice
As you may have heard, the government have now promised borrowers that they will be able to receive a three-month mortgage payment holiday if they need it. However, some lenders could also be financially unstable and may not follow these rules, even though they should.
In the last few weeks, we have been thinking very carefully about how the coronavirus could impact the mortgage industry. We have been in close contact with all of our lenders so that if anything dramatically changes, we can report back to you straight away. We want you to feel secure and comfortable during these next few months of your mortgage payments so we will ensure that we let you know all of the important information.
On that note, we feel that now is a good time to discuss what mortgage holiday payments are and how they can help you with your mortgage payments.
What is a mortgage payment holiday?
A mortgage payment holiday is simply a set-period, agreed upon between you and your lender, bank or building society, where your mortgage payments are deferred. In this situation, the period should be about three months long.
You will still have to pay back these payments. Over the period, you will receive interest which will be added onto your loan at the end of the payment holiday whilst your capital balance will not decrease. So, your overall mortgage loan will slightly increase. So you save money in the short term but in the long term, it may prove expensive.
Once you feel like you are ready to start paying back your monthly mortgage payments, either your monthly mortgage payments will be recalculated at a higher level or your mortgage term could be increased. Lenders prefer to not increase your mortgage term as it could put you past their standard retirement ages.
You may even be allowed to pay off a lump sum later on in the year to get your monthly mortgage payments back on track to how they were prior to your payment holiday.
Mortgage payment holidays are available for borrowers with both residential or Buy to Let mortgages. This really helps out landlords as they now have help if rental payments are affected.
The government’s proposal
Here is the Government’s proposal following the COVID-19 outbreak:
- Mortgage lenders will offer an automatic three-month mortgage payments holiday for borrowers who have been 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.
How do I apply for a mortgage payment holiday
Even if you had a mortgage payment holiday before, we always recommend speaking to your Mortgage Advisor in Grimsby. They will sort out everything out for you and work out whether you actually need to take a mortgage payment holiday. Alternatively, you can go directly to your mortgage lender and enquire about taking one but this may not benefit you as you may not even need one. The main thing is not to panic and explore all of your options before rushing into anything.
Here are the steps you need to take if you won’t meet/aren’t meeting your monthly mortgage payments and have been directly affected by the COVID-19 outbreak:
- The customer would contact the lender and inform them that they are being impacted
by COVID-19 - The lender would accept these details from the customer and offer an automatic
three-month mortgage payment holiday - No evidence is needed for the lender
- 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, also 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.
Will a Mortgage Payment Holiday impact my credit score?
In most cases yes, they will have a negative impact on your credit score. However, you are taking one because of a virus so lenders shouldn’t allow it to affect your score.
To ensure that this is the case, before taking out a mortgage payment holiday, you must contact them. You need to record their answer as well as the date, time and the name of the person that you spoke with. This will avoid any confusion down the line if anything changes. It all depends on your lender, there is no guarantee that every lender will say the same thing.
Will I still be able to remortgage or take a product transfer with my lender?
You would’ve thought that everything would continue as normal, however, all lenders are now avoiding all remortgages and product transfers during a mortgage payment holiday.
This will affect borrowers approaching the end of their existing product as they may be forced to move on to a higher lenders variable rate. This could mean that borrowers who act too early and jump into a mortgage payment holiday deal straight away could end up accruing interest on a costly variable rate.
This is another reason why we say don’t rush into anything! Take it slow and evaluate your options with an expert Mortgage Advisor in Grimsby first, they will make sure that you actually need to take out a payment holiday first before diving in headfirst. There are lots of mortgage options out there so have a look first with your local Mortgage Broker in Grimsby.
What are my other options?
Some lenders could offer you a temporary switch over to interest-only in order to reduce your monthly payments but not to add any more to the loan amount by still servicing the interest payments each month.
You don’t need to put all of your mortgages onto interest-only, but doing so could help you out financially.
If you have savings, remortgaging onto an offset basis could really help you out, you will be cutting down on monthly payments massively. For example, if you have a £350,000 loan and £100,000 in your savings, you would only pay interest on £250,000.
This may all may seem a bit crazy and it may have come around faster than expected, however, you should try to take it slow and calm down. As your local Mortgage Broker in Grimsby, we are here to help and relieve you of all of the stress. Remember, we are still open as usual operating 7 days a week. Receive a free mortgage consultation with a Mortgage Advisor in Grimsby today, we hope that we can help you out!
Mortgage Advice in Grimsby
Date Last Edited: January 9, 2024
