What is a mortgage payment holiday?
Put simply a mortgage payment holiday is a period of time where your lender agrees to defer your mortgage payments. During this time, the interest due on your mortgage is simply added to the balance.
Most lenders have offered this type of arrangement for many years, however as part of the package of measures to support borrowers who have been financially impacted by COVID-19, all lenders have been asked to implement a special 3 month mortgage payment holiday.
This is for both residential and buy to let mortgages, which means landlords can also seek assistance if their tenants rent payments are affected.
It is important to note this is a break in the payments to the lender, not a break in interest charges. As noted above, this means that during any payment holiday, the interest continues to accrue and your mortgage balance increases. It will also mean that at the end of the payment holiday, the lender will typically either increase your monthly payments slightly or increase the mortgage term.
Should I apply for a mortgage payment holiday?
We advise that first of all you speak to your adviser here to discuss your options.
As the payment holiday is a deferred period with interest still being applicable, if you have not yet been financially impacted it is likely your best option is in fact to continue to pay your mortgage as normal.
Whilst the Government may extend the period, at present these payment holidays are capped at 3 months, so you would want to ensure this facility is available in the future if it is really needed rather than signing up for this too early.
Of course we understand that many of our clients will be going through a period of uncertainty and economic turbulence, with your mortgage payment as your largest monthly commitment. Where you have been financially impacted this payment holiday could be a very necessary resolution, and in those scenarios we will help advise accordingly and guide you to how to apply with your lender.
How do I apply for a mortgage payment holiday?
You have to speak to your lender directly to apply for a mortgage payment holiday. The best method to do this varies depending on your lender. Some lenders you have to call, whilst others have set up streamlined online application forms.
We will be able to help you with the best way to contact your lender, as we have spoken to our lender partners to compile the best route of contact for our clients.
It is very important to note this is that it is not an automatically granted option, if you wish to exercise it you must speak to your lender first. If you were to just cancel your direct debits you would go into mortgage arrears, and this would have a big impact on your credit file.
Does it affect my credit rating?
As long as you have set the mortgage payment up directly with the lender and they have confirmed this has been formally granted, this will not affect your credit rating or credit score.
This is only for the confirmed mortgage payment holiday, any other missed or late payments would negatively impact your credit rating as normal.
If you decide to stop your mortgage payments without getting approval from your lender, your mortgage will go into arrears and this will affect your credit rating and potentially impede your ability to apply for a mortgage or other credit in future.
Can I remortgage when my fixed rate ends later this year if I have taken a mortgage payment holiday?
This is a very important question that has been raised in recent days. The short answer is it varies lender by lender, reinforcing why it is so vital that you speak to your adviser before you contact the lender. If not you could find that you are on the payment holiday, but your fixed rate ends in two months and suddenly you are forced onto the much higher standard variable rate with them because they will not allow you to switch to the normal lower rate options whilst on the holiday. This is because some lenders have a stipulation of a mortgage payment holiday that your mortgage terms will not alter in this period.
This could mean that many borrowers who act too early could well find themselves on a mortgage payment holiday that accrues interest on a more expensive variable rate.
As long as you speak to your adviser first, they will be able to help confirm the best option. It could be that setting up a remortgage or product transfer first is the most viable option to ensure you continue to pay a lower rate of interest on your mortgage.
If you would like to speak to us to discuss any of the above, or your mortgage options, please contact us using our:contact form.
The below are the guidance points from the government on payment holidays.
The full proposal is in detail below:
• Mortgage lenders will offer an automatic 3-month mortgage payment holiday for customers 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 may 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.
For a customer, up to date with payments, not in arrears and impacted by COVID-19:
• the customer would contact the lender and inform them that they are impacted by COVID-19
• the lender would accept these details from the customer and offer an automatic 3-month mortgage payment holiday
• no evidence will be sought from the customer
• 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, while 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.