Coronavirus has affected the jobs and income of many people, placing them under great financial strain. Because of this, any homeowners who are facing a reduced income over the coming months may be worrying about how they will make their monthly mortgage payment.
Mortgage payments make up a significant proportion of a homeowner’s monthly outgoings, and finding a way to make the payments with limited available finances is likely to be a major source of concern.
So, to help homeowners and landlords struggling to make their payments, the government announced that mortgage lenders would be offering three-month mortgage payment holidays. On the 22 May this was extended by an additional three-months, so the mortgage payment holiday scheme will now be available for a 6-month period until 31 Oct 2020.
By temporarily removing the considerable expense of a mortgage, the holiday is intended to reduce the financial stress on homeowners and landlords, and give them some breathing space to help get their finances back on track.
What is a mortgage payment holiday?
A mortgage payment holiday is a temporary agreement between you and your mortgage provider that allows you to stop making your mortgage payments for a set period of time- in this instance 6 months.
During this period, you won’t need to make any mortgage payments. However, the payments are not being waived, just deferred.
If you are approved for a mortgage payment holiday, the actual capital balance you have left to pay will stay the same. However, you will still be charged interest over the payment holiday period, which means your total balance will increase and you will end up paying more over the course of your mortgage. The exact arrangement on how you will make up the missed payments will vary between providers.
Mortgage lenders shouldn’t charge any additional fees for setting up this kind of payment holiday.
For at least three months, mortgage providers are also expected to stop any repossession action. So, if you are struggling to make payments, you shouldn’t be in immediate danger of having your home repossessed.
Do I qualify for a payment holiday?
These mortgage payment holidays are available to both homeowners and buy-to-let landlords.
They are targeted at individuals whose finances have been affected by coronavirus, whether they have lost their job or are on a reduced income.
Buy-to-let landlords are eligible for a payment holiday if their tenants will struggle to make their rental payments due to coronavirus. If the landlord is approved for a mortgage payment holiday, they are expected to pass on the benefit to their tenants.
To stand the best chance of receiving quick approval for a mortgage payment holiday, you should be up-to-date with your mortgage payments. You may still qualify if you are behind with payments, but your mortgage provider is likely to be less willing to offer a holiday and may offer alternative options to you instead.
Mortgage payment holidays will not be the best option for everybody, so if you are in any doubt, you should contact your provider to work out your possible options.
A mortgage payment holiday is meant to be a short-term solution for homeowners and landlords facing temporary cash flow problems- as a result of coronavirus in this instance. They are not meant for people who can’t afford payments because they are on a permanently reduced income, with little sign that it will rise within the coming months.
Do I need to have coronavirus to qualify?
No, it is not essential for you or a member of your household to have contracted coronavirus to qualify for a mortgage payment holiday.
As COVID-19 is affecting so many people financially, not just those who have the virus, the payment holiday is available to any homeowner or landlord who think they will struggle to meet their mortgage repayments in the current circumstances.
How do I apply for a mortgage payment holiday?
You will need to contact your mortgage lender as soon as possible to arrange a payment holiday. Depending on your provider, you can usually apply online or over the phone.
Because of COVID-19, there is a fast-track approval process to help homeowners and landlords get approved for a mortgage holiday sooner. The application process has temporarily become more streamlined and straightforward, as lenders won’t assess applicants through affordability tests and won’t require evidence of your income or finances.
Instead, you will just need to confirm that you, or your tenants, are experiencing financial difficulties because of coronavirus.
You can ask your lender to conduct a standard full assessment if you prefer. But, if you have immediate worries about how you will afford your next mortgage payment, this payment holiday option is designed to make it easier and quicker to get approval.
Where possible, the payment holiday would start from your next payment, but this will depend on the provider and how soon the payment is due.
What happens after the three months?
After the payment holiday period, you would normally be expected to resume payments.
Your lender will contact you to reassess your situation and decide whether you are able to resume repayments. You will both then need to agree on how you will make up the deferred payments and pay off the remaining balance on your mortgage. When you apply for the holiday, you should check if your lender already explains how they will recalculate your payments after the payment holiday period.
For example, many lenders will spread the sum of the deferred payments and their interest across your remaining balance, which would cause your remaining monthly payments to increase. How much they would increase would depend on how long you have left on your mortgage- the shorter the term you have left, the more they would increase.
Alternatively, you may be able to extend your mortgage term or work out a different agreement with your provider to cover the deferred payments.
If your finances are still suffering from the impact of the virus and you think you may still struggle with repayments, you should contact your provider as soon as possible to discuss your options.
The key is for you and your provider to agree on the most appropriate and most affordable way to continue paying off your mortgage.
Will a mortgage payment holiday impact my credit score?
Previously, a mortgage payment holiday could affect your credit score.
However, in this instance, taking the mortgage repayment holiday shouldn’t impact your credit rating. Lenders should not record the deferred payments as missed payments on your credit file, but if you have any concerns about this you should contact your provider.
What are the alternatives to a mortgage payment holiday?
The mortgage payment holiday is meant to be an easy way for people affected by the virus to quickly ease their immediate financial pressures.
However, if your financial situation is more stable and you’re not in urgent need of a payment holiday, then lenders may be able to offer alternative ways to make your mortgage payments more manageable.
For example, these may include temporarily switching to interest-only mortgage payments or capital-only payments for a defined period, or extending your mortgage term to reduce your monthly payments.
These alternatives are likely to involve a longer application and assessment process than if you opted for the payment holiday.
Where can I get more information and advice?
For further information on this payment mortgage holiday scheme, you should consult your mortgage lender’s website or contact them directly to see what they can offer you.