Recently, we have seen lots of borrowers questioning Mortgage Payment Holidays, maybe not too sure of how they really work. The predicted statistic is that 1 in 9 mortgage holders have already taken out a Mortgage Payment Holiday since the virus broke out across the globe. They’re quickly becoming a popular choice for mortgage holders.
As an experienced Mortgage Broker in Liverpool, we have seen an increase in the number of borrowers asking us how we’d react and what we would recommend. Our Managing Director Malcolm Davidson appeared on BBC Radio for an interview with David Burns on the 15th April 2020. Below are some of the questions he was asked, along with his answers.
It’s said that there are over a million people that have taken out a Mortgage Payment Holiday. We’ve had quite a lot of calls about them so far and the banks have had to redeploy a number of their staff that would normally be processing applications to take the incoming calls as they are constantly flooded with querying customers. It seems that everyone wants to take that option or they are just rushing into it, which is not an ideal situation to be in.
In regard to applying for a payment holiday, there are a few things that you should make yourself aware of. Firstly, the mortgage payments that you are taking a break from aren’t just forgotten about. You’ll have to make up these payments at a later date; you can do this in a few different ways.
Another thing is please don’t just cancel your direct debit. The payment holiday must be an arrangement between you and your lender, building society or bank. If you were to just outright cancel the direct debit, you run the risk of their lender marking arrears against your account. This could damage your chances to get a mortgage or other credit down the line.
Throughout the BBC Radio show, Malcolm offered to answer questions from members of the public. There was a great response and Malcolm was 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”
To anyone maybe wondering about this, if you are continuing to work in your job and your finances are not affected, you are completely right. There is no need to take a Mortgage Payment Holiday. The scheme was designed with the intention of helping people whose income has been affected by the crisis. For example, they might have unfortunately been laid off work or furloughed.
There are lots of people out there that are in need of this and the payments will need to be made up for at a later date.
When it comes to making up the months that you missed, the lender may choose to increase your monthly mortgage payments. What most people may not realise is that your payment increase may only be by £10 or £20 a month, depending on the length of your mortgage term. In short, it may not be so bad to check out that option if you are really struggling to afford your payments right now.
No, you don’t. The Financial Conduct Authority has issued some specific guidelines to lenders and this topic is one of the things mentioned. There’s no need to prove that you are suffering from financial hardship at all. If you are wanting this option, they should handle it with sympathy.
There are other guidelines in place that also need to be followed. These include things like the payment holiday not being recorded on the customer’s credit file to impact them getting credit in the future.
When calling, the customer may not even ask the lender for a payment holiday, their call may only be about their payments. The lender however, should automatically offer the mortgage holiday option to the customer. So to summarise, you don’t just have to ask yourself. The lender should offer you the option also.
“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?“
If you’ve been furloughed and are worried that your income could be affected, you may be better just taking the option to have 3 months off right now. This saves you causing any potential sort of hardship down the line, just in case the scheme happens to get pulled in a couple of months when you’re in dire need of it.
If you’re not sure you can meet your mortgage payments at all it could be your best option to take one immediately. Most customers are going for it immediately and starting the 3-month break from now.
The situation is ever-changing. 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 that route. If you do need it, go for it as soon as you can.