Some mortgage borrowers may have been adversely affected financially by The Coronavirus (COVID-19). Because of this, they may consider requesting to take a mortgage payment holiday on their mortgage for up to three months.
The Government’s policy aims to ease the stress some borrowers will face during the pandemic. It also provides some flexibility at a time when many workers are facing lower or no incomes.
As mortgage payments are usually a household’s largest outgoing, pausing payments may take some pressure off. An alternative some borrowers may want to consider is reducing payments instead of delaying the debt.
What is a mortgage payment holiday?
A mortgage payment holiday means you agree with your lender that you will not have to make contractual mortgage payments for a set amount of time. They aim to help you when you may experience payment difficulties. In this case, because of the Coronavirus situation. Under the Government’s new policy, you can apply for a payment holiday of up to three months.
It is important to remember that a mortgage holiday is a temporary break from your mortgage payments. You still owe the amounts that you do not pay because of the payment holiday, and interest continues to be charged on the amount you owe. This means that, at the end of the payment holiday, you will be required to make up the missed mortgage payments.
There will be many options for doing this. One is by increasing your monthly payments slightly. Another is by adding a short extension to your term. Your lender will be able to explain to you what options it offers.
Should I apply for a mortgage payment holiday?
The majority of the main mortgage lenders have committed to this. Some lenders may consider that another option is more appropriate for the borrower’s circumstances, and where it is in their interest. This can be discussed with the lender.
You should not apply for a mortgage payment holiday if you are not experiencing or do not expect to experience payment difficulties.
How do I apply for a mortgage payment holiday?
Mortgage payment holidays of up to three months are available to all homeowners who are up to date on their mortgage payments. They are also available to buy-to-let landlords whose tenants have been financially affected by the coronavirus. You can apply for a payment holiday at any time before this guidance is reviewed in three months.
Landlords who take payment holidays are expected to pass on this relief to their tenants. Homeowners who are in arrears on their mortgage should contact their lender. They will review any changes to their circumstances and discuss their options. For most mortgage lenders the quickest way to apply will be to complete an online form or telephone them.
Your lender will not require you to provide any documentation or undergo any affordability tests. Instead, homeowners will need to self-certify that the coronavirus has affected their income. If you are a landlord, you will need to self-certify that your tenant’s income has been affected by the outbreak.
Due to the number of requests for payment holidays, in some instances, it may take over a week to process them. Once your mortgage lender has applied the payment holiday to your account, they will write to you confirming when it will start.
Where can I find my mortgage account number?
Your account number can be located in many places, including:
- In your original mortgage offer letter
- Any mortgage payment notice from your mortgage lender on Your annual mortgage statement
Should I cancel my direct debit mandate?
No. It is only a payment holiday if it has been agreed with your lender. You should not cancel your direct debit without speaking to your mortgage lender first. Cancelling your direct debit is not a payment holiday, and these will be counted as missed payments. This could show up in your credit file and may impact your ability to remortgage at a future date.
How will interest on my mortgage be calculated during the payment holiday?
You will still be charged interest during the payment holiday unless your lender has told you otherwise. Interest will continue to build at your usual interest rate during the payment holiday. The total amount of interest you pay over the term of the mortgage will increase.
When your payments start again after the payment holiday, they will be recalculated. It is likely the mortgage lender will spread the outstanding payments over the outstanding term of your mortgage. This would result in an increase in your monthly mortgage payments. This will also result in a slightly higher mortgage balance than if you had not taken out a mortgage holiday. You will need to agree with your lender a manageable way to make up the missed payments given your circumstances.
It may be that you are still not able to make your full mortgage payments due to circumstances relating to coronavirus. If this is the case the lender may offer you a further payment holiday.
Will taking a payment holiday harm my credit status?
The Financial Conduct Authority’s guidance has made it clear that taking a payment holiday will not harm a borrower’s credit file. Experian, Equifax, and TransUnion have confirmed they will protect the scores of those affected.
If I am behind with my mortgage payments, can I still apply for a payment holiday?
Lenders are expected to offer payment holidays to all borrowers who are experiencing or reasonably expect to experience payment difficulties because of circumstances related to the coronavirus. This is the case whether or not they are already behind on their payments.
Lenders are also expected to stop repossession action. This applies to all mortgage borrowers. Many lenders have already committed to this.
Are there alternatives to taking a mortgage payment holiday?
A payment holiday is one option that a mortgage lender can offer. You do not need to undergo an affordability assessment, but if you are willing to do so, then your mortgage lender may offer you more tailored support. Some of the options available could include:
- Moving your mortgage to interest-only payments for a period
- Deferring your interest payments for a period
- Extending your mortgage term (reducing your monthly payments)
- Adding the deferred payments to the overall amount you owe and spread this over the remaining mortgage term