Over the last couple of weeks, we have seen lots of borrowers questioning Mortgage Payment Holidays, unsure of how exactly they work. The suggestion is that 1 in 9 mortgage holders have taken out a Mortgage Payment Holiday since the outbreak of COVID-19. They’re quickly becoming a popular option.
As a Mortgage Broker in Manchester, we have seen quite an increase in borrowers asking us how we’d personally react and what we would recommend them to do in their own situation. Here are some of the most commonly asked questions about these Mortgage Payment Holidays and their answers, taken from our Managing Director Malcolm Davidson’s BBC Radio interview with David Burns on the 15th April 2020.
Well, the suggestion is that there are over a million people that have taken out a Mortgage Payment Holiday. We have had a large amount of enquires about them. The banks have had to redeploy a number of their staff that would normally be processing applications to take the incoming calls as they are constantly overrun with customer queries. It seems that everyone wants to take that option or they are just rushing into it, which is not recommended.
In regard to applying for a payment holiday, there are a few things that you should consider. Firstly, the mortgage payments that you are taking a break from won’t just go away. You’ll have to make up these payments later down the line; you can do this in a couple of different ways.
Another thing is to not just go cancel your direct debit. The payment holiday has to be an arrangement between you and your lender, building society or bank. If you were to just cancel the direct debit, they run the risk of their lender marking arrears against their account. This could hinder your ability to get a mortgage or other credit at a later date.
Throughout the BBC Radio show, Malcolm offered to answer questions from members of the public. There was a great response and Malcolm was asked even more valid questions, for example:
“I don’t think it would be worth taking a mortgage holiday because it will still have to paid back at a later date and there will be default interest to pay on top of the basic mortgage they’ve missed”
My advice to anyone maybe wondering about this, is that if you are continuing to work in your job and your finances are not affected, you are absolutely right, there is no need to take a Mortgage Payment Holiday. The scheme was designed with the intention of helping people whose income has been affected. For example, they might have been unfortunately laid off through work, or furloughed.
There are lots of people out there that do need this, and she is absolutely right the payments will need to be made up for at a later date.
When it comes to making up the months that you missed, the lender may increase your monthly mortgage payments. What most people aren’t aware of is that your payment increase may only be by £10 or £20 a month, depending on how long your mortgage term is. So in the end, it may not be so bad to check out that option if you are really struggling to afford your payments right now.
Simply put, no, you don’t. The Financial Conduct Authority has issued some guidelines to lenders and this topic is one of the things brought up. There’s no need to prove that you are suffering from financial hardship in the slightest. If you are wanting this option, they should handle it with the utmost sympathy.
There are other guidelines in place that they need to follow too. These include things like the payment holiday not being recorded on the customer’s credit file to impact them getting credit at a later date.
The customer may not even specifically ask for a payment holiday, their call may only be about their payments. The lender however, should automatically offer the mortgage holiday option to the customer. So to summarise, you don’t just have to ask yourself. The lender should offer you the option too.
“People have been asking whether they can scale their mortgage payments. For example, you have been furloughed so you are now on 80% of your wage, so are you then also eligible to pay 80% of your mortgage payments?”
If you were being furloughed and are concerned that your income is going to be affected, it may be better to just take the option to have 3 months off right now. This saves you causing any potential sort of hardship down the line just in case the scheme gets pulled in a couple of months when you need it the most.
If you’re unsure if you can meet your mortgage payments at all it could be your best option to take one now. Most customers are going for it immediately and starting the 3-month break from now.
The situation is ever-changing and evolving. We are also experiencing what lenders are doing on new mortgages as well; we are in a completely new world. The offer is there at the moment for the 3 month payment holiday. If you don’t need it, don’t take that route. If you do need it, go for it as soon as possible.