Mortgage Payment Holidays

The Chancellor’s announcement back in March, offering 3-month mortgage payment holidays for homeowners experiencing financial difficulties due to COVID-19, came as welcome news to many people. Mortgage lenders agreed with the Treasury that any customers who are in ‘difficulty’ will be eligible.

Initial uptake
Recent data has revealed over 1.2 million mortgage payment holidays have been offered to customers impacted by COVID-19. Around one in nine mortgages in the UK are now subject to a payment holiday. In the two weeks to 8 April, the number of mortgage payment holidays more than tripled, growing from 392,130 to 1,240,680, with an average of around 61,000 payment holidays granted each day.

1.2 MILLION MORTGAGE PAYMENT HOLIDAYS OFFERED
61,000 PAYMENT HOLIDAYS GRANTED EACH DAY.

How does it work?
Homeowners who are concerned about being able to pay their mortgage should contact their lender. If you progress to applying for a mortgage payment holiday, you will have to self-certify that your income has been affected – no documentation is required. If you’re a landlord, you will need to self-certify that your tenant’s income has been affected. With many lenders, you can make an online application, your lender should not charge a fee to process your application.

Credit agencies have agreed an emergency payment freeze due to the pandemic, to ensure current credit scores are protected for the duration of an agreed payment holiday.

Lots to consider
The key benefit of a payment holiday is that it provides short-term relief, alleviating some financial pressure. Faced with a temporary drop in income, it can be a reasonable option, depending on individual circumstances.

Taking a payment holiday will not reduce the capital you still owe, nor will interest stop accruing. That means it will cost more to clear your debt once payments resume, so your monthly payments will be higher as a result of taking the holiday.

Need to knows
Banks were under no obligation to have payment holiday processes in place prior to the outbreak. Now most will offer them, although not to everybody. Based on your original mortgage application your lender will know what your job and salary are, and may reject you if you are still earning.

You must not stop making mortgage payments without speaking to your lender. If you do this, you will go into arrears, creating a black mark on your credit file which could prevent you borrowing in the future.

Don’t rush in
If you are worried about making your mortgage payments, it is crucial that you speak to your lender. A payment holiday may not be suitable for everyone. Some brokers have reported that people have panicked and arranged a payment holiday too early. If, for example, your partner is still receiving an income and your usual outgoings are down, it makes sense to defer the payment holiday until a time when you might really need it.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE