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Mortgage Payment Holidays

Mortgage payment holidays

As you may have heard, the government have promised that all borrowers will be allowed a three-month mortgage payment holiday if they need it. Most lenders will follow the government’s guidelines and do their absolute best to help their borrowers during these hard-few months. However, there is no guarantee that every lender will stick to this as they too may be struggling financially, it depends on the lender.

We have thought carefully about the possibilities of what could happen to your mortgage over the next few months and are working very closely with all of our lenders to ensure that if anything changes, we can inform you right away and recommend the best option for you to take so that you still feel secure and happy with your mortgage.

We feel that it is best to summarise what mortgage payment holidays are, what lenders are doing and who can provide you with help and guidance through these next few months.

What is a mortgage payment holiday?

To make it simple, a mortgage payment holiday is a period where your monthly mortgage payments can be deferred. This is an agreement between you and your bank, building society or mortgage lender. In this case, your mortgage payment holiday should be about three months long.

Just because your payments are held back for a set time doesn’t mean that you won’t have to pay it back. The interest that you defer will be added onto the loan amount whilst your capital balance will not decrease. So, your mortgage amount will slightly increase, and you will continue to gain interest on the whole amount.

When you are financially ready to start paying back your mortgage payments, either your monthly payments are recalculated at a slightly higher level or your mortgage term is slightly increased. Lenders prefer to not extend your mortgage term as this could take you past their standard retirement ages.

Most of the time it’s down to your lender and your mortgage deal as sometimes you will be allowed to pay off a lump sum later on in the year to get your mortgage payments back on track to how you would’ve been before your mortgage payment holiday.

Mortgage payment holidays are available for borrowers with residential or Buy to Let mortgages. This helps landlords, as they have assistance if rental payments are affected.

The government’s proposal

Here is the full Government proposal following the COVID-19 outbreak:

  • Mortgage lenders will offer an automatic three-month mortgage payments holiday for borrowers who have been impacted directly or indirectly by COVID-19
  • The mortgage payment holiday will apply to customers who are up to date on their payments, not in arrears, and wanting to self-certify that they are impacted by COVID-19
  • This means that lenders will not complete an income and expenditure assessment, or an assessment of alternate payment options as ordinarily required under MCOB
  • This proposal will allow lenders to be more responsive to customer needs and offer forbearance in a simple way to customers in an environment where the operation of collections teams made be also impacted by COVID-19
  • Customers will be made aware that interest will accrue in the holiday period and they will need to make up deferred payments in the future
  • Customers who wish to undertake a full assessment of their ability to pay or financial difficulty may still do so.

How do I apply for a mortgage payment holiday?

Even if you have been through this situation before, we always recommend that you speak to your Mortgage Advisor in Hull. They will assess your financial situation first before looking to defer your payments as your situation may not yet be pressing. At this time, lenders will be getting calls left right and centre so we advise that you speak to your Mortgage Advisor in Hull first before going to them directly. Approaching a Mortgage Broker in Hull like us will allow you to explore all of your current mortgage options and could make things feel a lot less stressful.

For a customer that is up to date with their mortgage payments, not in arrears and impacted by COVID-19:

  • The customer would contact the lender and inform them that they are being impacted
    by COVID-19
  • The lender would accept these details from the customer and offer an automatic
    three-month mortgage payment holiday
  • No evidence is needed for the lender
  • The lender makes the customer aware that interest will accrue and will be contacted at the end of the three months to complete an assessment of the customer’s circumstances
  • At the end of three months, an arrangement to pay will be agreed with the customer according to their circumstances to recover any shortfall, also ensuring that the mortgage remains affordable and sustainable
  • The lender notifies the customer that if they wished to complete a full assessment now, there may be other forbearance options more suitable to the customer.

For more information on how COVID-19 could affect your mortgage, click here to read our previous article.

Will a mortgage payment holiday impact my credit score?

In most cases, a mortgage payment holiday can have a negative impact on your credit score. In this situation, you are deferring your payments because of a virus, so lenders will make sure that your credit score will not be damaged.

You must ask your lender this question directly and record their response. Make sure you have the date and time and the name of the person that you are speaking to avoid any confusion further down the line. Again, it really depends on the lender as they all do different things.

Will I still be able to Remortgage or take a product transfer with my lender?

At first, everything seemed like it would remain exactly the same and you would still be able to make changes to your mortgages as normal. This has changed in the last couple of days and lenders have been asking borrowers to avoid making changes whilst you are within a mortgage holiday period. So, at the moment they are not allowing mortgages and product transfers.

Borrowers nearing the end of their existing product may be forced to move on to the higher lenders variable rate. This could mean that borrowers who act too early could find themselves on a mortgage payment holiday that accrues interest on a costly variable rate.

This is why we recommend speaking to your Mortgage Advisor in Hull. They will recommend the best option for you to take based on your personal and financial situation. If you can, it would be helpful if you could arrange your mortgage transfer first then ask for the payment holiday.

Are there any other options available?

In some cases, lenders can offer you a temporary switch to interest-only in order to reduce your monthly payments but not to add any further to the loan amount by still servicing the interest payments each month.

You may not need to convert all your mortgage to interest-only and it may be that putting part of the mortgage on these grounds could allow you the breathing space that you need.

People with savings may find that remortgaging onto an offset basis could give them that boost that they need, they will be cutting down their monthly payments whilst keeping hold of their savings.

Take this example, someone who has a £400,000 loan and £100,000 in savings would only pay interest on £300,000. This will massively reduce their monthly mortgage payments.

For others, a straight remortgage to another lender, calculating the cost of any early repayment charges, may well be enough to ease the burden or simply extending the term of your mortgage.

If you still have any other questions on mortgage payment holidays or just want general Mortgage Advice in Hull, give us a call today. We have been in the mortgage business for a very long time now and we want to help you and your mortgage through these tough few months ahead. Speak to a Mortgage Advisor in Hull today at Hullmoneyman.

Hullmoneyman.com & Hullmoneyman are trading styles of UK Moneyman Limited, which is authorised and regulated by the Financial Conduct Authority.
UK Moneyman Limited is authorised and regulated by the Financial Conduct Authority.
UK Moneyman Limited registered in England, registered number 6789312 and registered office 10 Consort Court, Hull, HU9 1PU.

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