Mortgage Payment Holiday – What You Need to Know
As part of the Government’s measures to protect household income during covid-19, homeowners can now apply for three-month mortgage payment holiday until the deadline of 31st October 2020.
This is the second time the Government, together with the FCA, has offered a three-month mortgage holiday during covid-19 to homeowners and landlords across the UK.
An initial mortgage payment holiday of three months was offered at the beginning of the coronavirus lockdown period in March 2020, designed to give those homeowners extra flexibility and breathing space if their income had been directly affected by the disease.
To date the scheme has been used by 1.9 million households in the UK, saving the average home £755 in deferred payments. The scheme allows anyone to contact their mortgage provider and request no mortgage payments for three months – and to continue as normal once the scheme ends.
Key features include:
- You have until 31st October to request a three-month mortgage holiday from your bank or mortgage
- You should still make partial mortgage payments if you can
- No repossessions can take place during this period by any mortgage banks or providers, across the UK
- Applying or using a payment holiday will not impact your credit score
How do you apply for a mortgage holiday?
To apply, simply contact your mortgage lender or provider and ask for a mortgage holiday. Each bank or provider should have a specific page on their website and you can typically apply in just a few minutes.
There are no affordability checks and you do not have to provide any evidence of financial hardship or difficulty. The process is fast-tracked and you often get a very quick decision – and provided that you are within the 31st October deadline, you should be approved.
Even if you have been using a mortgage holiday up to this point, you are still eligible for a further three months. However, in some cases, some lenders may take a view if they think you are trying to avoid payment altogether, since you will still be liable for any outstanding interest.
Are there fees charged for taking out a mortgage holiday?
Some banks and mortgage providers are charging zero fees for taking out a mortgage holiday, with some charging just a small administration fee of £15 or similar. You will need to check with your mortgage provider beforehand and read the terms and conditions.
You are still required to pay any interest that was due on your mortgage and this is simply added to the end of the loan term.
By taking a mortgage payment holiday, you are not saving money, just having a break whilst you can get your finances in order during covid-19.
What about mortgage holidays for buy-to-let?
Buy-to-let is not technically regulated or covered by the FCA so it carries separate rules. However, in most cases, banks will accept mortgage holiday requests and they hope that landlords pass this onto their tenants who can also take a break if need be.
Buy-to-let mortgages are used by landlords and property investors as a way to borrow money against a house or flat and rent it out to the general public (tenants) to earn income. Landlords are undoubtedly coming under pressure from tenants to relax their monthly rental fees or take payment holidays too.
Starting at the top of the chain, it is feasible that landlords would request mortgage payment holidays during these uncertain times.
Will a mortgage holiday affect my credit score?
No, neither applying nor taking out a mortgage payment holiday through this covid-19 scheme will affect your credit score or be noted on your credit file.
In contrast, taking out a mortgage holiday or applying for one during non-covid-19 times, will be recorded on your credit file and may cause your credit score to fall.
This suggests that you are having payment difficulties, so your credit score has to fall to reflect the added risk to future lenders and creditors.
However, homeowners and applicants have peace of mind that applying or using a mortgage holiday during the scheme will not have any negative impact.
Are mortgage offers upheld during this time?
Yes, for those currently in the middle of applying for a mortgage and looking to move, the FCA have confirmed that mortgage providers can uphold any existing or pre-approved applications during the covid-19 period.
However, mortgage lenders and banks have hinted at restricting the criteria for future mortgages and applicants can expect much tougher restrictions and affordability measures in place.
What does the FCA say about the mortgage payment holiday scheme?
Christoper Woolard, interm FCA chief executive explains that “anyone facing difficulty, can easily request help from their lender.”
“It’s everyone’s best interest to actually get back towards payment wherever that is possible or even partial payment, but we have to recognise that there’s an ongoing situation here.”
Woolard expressed his belief that half of the people who used the initial mortgage payment holiday in March were now able to pay.
“About half of that group are people who perhaps thought they were going to lose a job or have some other kind of impact, and in fact they’re in a position where they could still afford to pay now that that ninety-day period is coming to an end.”
Woolard emphasised that while lenders are suffering the financial burden in the short-term, borrowers will feel the effects when it catches up in the longer term through extended mortgages and rolled-up interest. Therefore, he expresses that if you do have a stable income now and are not overly affected by coronavirus, you should avoid a mortgage payment holiday and try to repay your monthly mortgage as per usual.
Why should you not use the mortgage payment holiday?
For some people who are looking to remortgage in the coming months or years, it may not look favourably if you have taken a 3 or 6-month payment holidays.
Future lenders may look at this with caution if you need to remortgage under new terms, and this may include being offered less favourable rates or even rejection.