In the last few weeks, we have seen lots of borrowers questioning mortgage payment holidays and how they work. The suggestion is that 1/9 mortgage holders have taken one out since the outbreak of COVID-19, they are becoming quite popular.
Here at your Mortgage Broker in Hull, we have seen quite a surge in borrowers asking us what we would do and what we would recommend them to do in their situation. Here are some of the most commonly asked questions about mortgage payment holidays and their answers from Malcolm’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 number of enquires about them and banks have had to redeploy a number of their staff that would usually be processing applications to take the incoming calls as they are constantly being swamped. It seems that everyone wants to take one out, or they are just rushing into it, which you shouldn’t.
In terms of applying for a payment holiday, there are a few things that you will have to look out for. Firstly, the mortgage payments that you are taking a break from will not get written off, you will have to make up these payments at a later date; 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/bank/building society, so if the borrower were to just cancel the direct debit, then they would be running the risk of their lender marking arrears against their account. This could heavily affect your ability to get a mortgage or other credit in the future.”
During the BBC Radio show, Malcolm offered to answer questions from the public. We got a really good response and were 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 who is asking this question is that if you are continuing to work in your job and your finances are unaffected, you are completely right, there is no need to take a mortgage payment holiday. The scheme was designed to help people whose income has been affected, for example, they might have been laid off through work, or furloughed. So, there are lots of people out there that do need this, and she is absolutely right the payments will need to be made up at a later date, often by an increase in your monthly payments.
In terms of making up the months that you missed, you might be faced with an increase in your monthly mortgage payments. What most people don’t realise is that it could only be by £10 or £20 a month, depending on the size of your mortgage term. So in the end, it may not be that bad of an idea if you are really struggling to afford your payments at the moment.”
“No, you do not, the FCA has issued some guidelines to lenders and that is one of the things stated. You do not have to prove that you are suffering from financial hardship at all, you can just make the request and they should handle it sympathetically and then grant the request. They also have other guidelines in place that they need to follow, such as, the payment holiday should not be recorded on the customer’s credit file to impact them getting credit at a later date.
Even if the customer does not specifically ask for a payment holiday, they may call in about their payments, their lender should automatically offer the mortgage holiday option. So, it is not just the borrowers who should ask for one, your lender should offer you one 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?
“I think that if you were being furloughed and you think that your income is going to be adversely affected, you may as well take the first three months now rather than cause yourself any potential sort of hardship down the line just in case the scheme gets pulled in a couple of months when you most need it. If you are questioning your ability to meet your mortgage payments in any way, it could be your best option to take one now. Most customers are actioning on it straight away and starting the 3-month break from now.
The situation is changing rapidly and 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 it, if you do, accept it straight away.”