As you will no doubt be aware, the recent pandemic has caused all sorts of disruption to our health care, family lives, and work lives. Fortunately, helps was made available by way of mortgage lenders allowing people to take an initial three month “holiday” from their payments.
If you took one of these holidays and are wondering what to do next, or if you didn’t take a holiday bur are now considering it, we’ve put together some information to keep you well informed of your options available, and the impact this will have on you and your mortgage going forward.
What is a payment holiday?
A payment holiday is where you mortgage lender will allow you to stop paying your monthly payments for an agreed amount of time. Initially under this scheme, that has been for three months. It must be done in agreement with your lender and you must get their permission. DO NOT simply cancel your direct debit.
How do I apply for a payment holiday?
Each lender has taken a different approach, however most lenders have created an application system on their website. Due to high demand for these holidays, all lenders recommending you look at their website first.
What happens to my mortgage while I am not paying the monthly payments?
Although your lender has allowed you to not pay for three months, they will still charge interest to the mortgage during this time. This means that the amount owed on your mortgage will increase slightly for as long as you’re not paying it.
Your lender will have three options for you to deal with this.
The first option is that they may allow you to just pay this interest during the three months. This will reduce any increases in your compared to other options.
The second option is to increase the overall term of your mortgage once the three month holiday is over. This will again reduce the amount your payments may increase by, but extending your mortgage means you will pay back more in the long run as you’ll be paying more interest over a longer period of time.
The third option is to increase your monthly payments when you start paying again. This is the quickest way to bring your mortgage back up to date, however the increase in your payments may vary depending on how long you have left on your overall mortgage term. The shorter amount of time you have left, the higher your payments are likely to be.
Whichever option you choose, your lender will explain the full impact to you before you commit to any changes.
What are the benefits of taking a mortgage holiday?
The main benefit of taking a holiday is being able to significantly reduce your monthly outgoings if your income has been affected by the crisis. By agreeing to take a holiday with you lender you can hopefully stop yourself falling behind with payments and running the risk of eviction and having the house repossessed. This means you can focus on other things that might demand more of your attention during the lock-down.
Are there any downsides to taking a payment holiday?
There are two main disadvantages to taking a payment holiday. The first is that while the holiday is in place, you are still being charged interest on the loan, so the mortgage balance and your payments will be higher than they were before they started.
The second is that lenders will still report this payment holiday to credit reporting agencies. Whilst government guidelines have been issued to protect consumers credit situations, future lenders may take the fact you had a holiday into account, and this could negatively affect your ability to get credit in the future.
I’m coming to the end of my holiday – can I extend it again?
Yes. In the latest government announcements it was publicised that you will be able to extend your holiday for a further three months if you need to. The option of payment holidays has been made available until the 31st October 2020. If you need to extend your holiday, contact your lender directly.
I’m already in financial difficulty – what help is there available?
If you were already struggling to keep up with repayments on your mortgage, your lender will not allow you to apply for a payment holiday. You will need to contact your lender directly and discuss your situation with them. They will be able to provide help and advice specifically to your situation.
Additionally, if you are having problems with debt, we recommend contacting a support agency, such as CAP (www.capuk.org) or Step Change (www.stepchanging.org.uk) for confidential impartial help and advice.
The option to take a mortgage payment holiday should only be used if you need it. We do not recommend taking a holiday if you are still in a position to meet your monthly payments.
We are as hopeful as you are that this awful pandemic will pass soon, and we can return to our normal lives, or get cracking with our “new normal.” Either way, we wish you all love and luck in the world. Stay safe.