Mortgage lenders have been required by the Government to offer mortgage payments holidays to those borrowers who are unable to meet the cost of their mortgage due to the coronavirus pandemic.
These payment holidays provide flexibility in repaying a mortgage by allowing borrowers to suspend or reduce monthly payments for up to three months to help those on a reduced income.
Mortgage holders have been advised to contact their mortgage lender if they wish to make use of this facility. In some cases, banks and lenders have already reached out to borrowers and offered a holiday to them and set up a simple online form to apply for a three-month holiday.
In most cases, borrowers will not need to provide evidence or have an affordability test and should get a quick decision.
Applications can also be made for buy-to-let mortgages if a landlord is experiencing a reduction in rental income.
Lenders are not charging application fees, but the unpaid interest accrued during the holiday will still need to be paid back.
Those who are already behind with their mortgage payments are not excluded from applying for a mortgage payment holiday and most people will not currently be at risk of losing their home as mortgage repossession proceedings have been temporarily suspended. Those struggling to meet the costs of their mortgage should speak with their lender.
Seeking a mortgage payment holiday should not affect a mortgage holder’s credit rating, but it may be worth confirming this with a lender.
Lenders will discuss any sums covered by a payment holiday, increases in your monthly repayments and any increase in the total amount payable under your mortgage contract once the payment holiday has ended.
They are likely to discuss how you intend to repay any outstanding amounts as well. This may include:
- A single lump sum
- Spreading deferred payments over the outstanding term of your mortgage
- Increasing the length of your mortgage term
- Making interest or capital only payments
Once a mortgage holiday terms are agreed the lender should explain the impact on future monthly payments or the mortgage agreement.
It is important that borrowers consider how these may affect the affordability of a mortgage in future and how it may interact with their plans for retirement or investment.
REMEMBER – cancelling a direct debit with a lender is not a payment holiday and will be counted as a missed payment if it has not been agreed in advance. Missed payments could show up in a credit file and may impact an individual’s ability to access finance in future.