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Mortgage Payment Holidays

At the start of the Coronavirus pandemic, the Government promised that all borrowers would be allowed a three-month mortgage payment holiday. Most lenders followed the Government’s guidelines and did their best to help their borrowers during these hard few months.

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, comfortable and happy with your mortgage.

What is a Mortgage Payment Holiday?

Essentially a Mortgage Payment Holiday is an agreement settled between a bank, building society, or mortgage lender who decides to delay your monthly payments for a period of time, which in this case is three-months.

However, this does not come without shortfalls. The break in payments does not mean that this will not have to be paid off. The interest that is delayed being paid back is re-added onto the loan amount whilst the overall capital balance will not decrease. Simply put, the mortgage amount will increase a slight amount and you will continue to attract interest on the overall amount.

When you’re able to pay your mortgage regularly again, your mortgage will be recalculated at a slightly higher level or your mortgage term could be increased. Though most lenders would prefer the mortgage to be recalculated so that for some borrowers, the term doesn’t take them over retirement age.

Depending on the conditions included with your mortgage deal and your lender, there may be an opportunity to pay off a lump sum to help get back on top with where your mortgage originally was.

Mortgage Payment Holidays are available both for those with residential or Buy to Let mortgages in York, which means landlords also have assistance if rental payments are affected.

What is the Government Mortgage Market Proposal?

The full proposal is in detail below:

  • Mortgage lenders will automatically offer a three-month mortgage payment holiday for customers who are affected, directly or indirectly, by COVID-19.
  • The mortgage payment holiday will apply to customers who are up to date on their payments, and wanting to self-certify that they are impacted by COVID-19. There may be an issue with granting a Mortgage Payment holiday if they are in arrears.
  • This means that there will be no need for lenders to complete an income and expenditure assessment, or an assessment of alternate payment options as ordinarily required under MCOB. It also means lenders will not need to carry out a re-assessment of income.
  • This proposal will allow lenders to be more responsive to customer needs and offer relief in a simple, quick and effective way to customers who have been impacted by Covid-19.
  • Lenders will make it apparent to customers that interest will accrue in this holiday period and the deferred payments will need to be made up in the future.
  • Customers who wish to undertake a full assessment of their ability to pay or financial difficulty may still do so if they feel it’s appropriate

Mortgage Payment Holidays: How do I apply?

When approaching looking into your Mortgage Payment Holiday, we would recommend speaking to a Mortgage Advisor in York as opposed to directly looking to undergo a mortgage payment holiday if there isn’t a pressing need to do so, as Lenders will be prioritising the most urgent cases first.

By approaching our Mortgage Broker in York, we will be able to look over your situation and look at all options available to best help your circumstance.

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

  • the customer would have to contact the lender and inform them of their situation e.g. that they are impacted by COVID-19.
  • the lender would accept these details from the customer and offer the automatic 3-month mortgage payment holiday that is applicable.
  • no evidence will have to be retrieved from the customer.
  • the lender highlights that interest will accrue and the customer 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 that has possibly occurred, while ensuring that the mortgage remains affordable and sustainable for the customer.
  • the lender will let it be known that if the customer wished to complete a full assessment now, there may be other forbearance options more suitable to the customer.

Mortgage Payment Holidays – What does this mean for my Credit Score?

When mortgage payment holidays are normally carried out, they tend to show on your credit score as a negative impact but most lenders have now stated that any cases linked to the virus will mean that this does not apply in the current scenario, so it should not affect your credit score in this way.

It is important for clarity and reassurance that you ask the question directly to your lender and make note of the response, keeping a record of the name of the person you are speaking to and the date of the enquiry. This will avoid any possible mishaps down the line because different lenders are carrying out different things.

Will I still be able to remortgage or take a Product Transfer with my lender?

The matter of remortgaging and product transfer have come to be seen as quite controversial elements in the property market at this moment in time. There has been apparent evidence suggesting that lenders are urging borrowers not to make any unnecessary changes to their mortgages so that they can focus their attention on sorting out the financial situation of current borrowers who are experiencing hardships. So, lenders are not allowing these to happen during this time.

This however means that borrowers who are near to the end of their existing product may be forced to move on to the higher lenders variable rate. This could possibly mean many borrowers who act too early may find themselves on a mortgage payment holiday that gathers interest on an even more expensive variable rate.

Our Mortgage Broker in York team highly recommend speaking to a Mortgage Advisor in York before you take any further action to see what the safest option would be, and the most sensible way forward.

I have exchanged contracts – can I complete my purchase?

Whilst the Government has advised people to not move house unless absolutely necessary, if contracts have already been exchanged and the process is at the end with all in agreement, then going ahead and completing the purchase will be fine.

Should I pull out of my purchase?

You should not pull out of your purchase unless for example you are worried about losing your job as a result of Coronavirus. We are advising everyone to proceed as normal for now and “wait and see” – you are not committed to completing your purchase until contracts are exchanged.

What other mortgage options are available?

There are other options available where some lenders are willing to offer ‘interest-only’, which will help borrowers reduce their monthly payments drastically but not to add any increase to the loan amount by still servicing the mortgage interest payments each month.

It may not be deemed necessary to convert all your mortgage to interest-only and even putting just a part of the mortgage on this basis could help relieve some tension in your mortgage payments in the long term.

To borrowers who hold savings in their accounts may find that remortgaging onto an offset basis may offer some more structured support as this will reduce monthly payments whilst their savings remain untouched.

An example for this for certain borrowers who may not understand offset mortgages would be as followed:

– someone with a £400,000 loan and £100,000 in savings would only pay interest on £300,000 reducing their payments accordingly.

For others, a straight Remortgage in York to another lender may offer some relief in mortgage payments. By calculating the cost of any Early Repayment Charges that may occur, this may well be enough to ease the burden, or simply extending the term of your mortgage which could be seen as helpful if you are struggling with your mortgage term or monthly payments.

To discuss any of these options, or to just have a helpful chat about your current situation please get in touch with a Mortgage Advisor in York.

Yorkmoneyman.com & Yorkmoneyman 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.
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