What is a Mortgage Payment Holiday?

With working life, and life as we know it, being significantly disrupted for many people and businesses, it is understandable that there is a need for financial support and solutions during the uncertainty that Covid-19 is bringing. During this uncertain time, The Money Hub can assist clients with a number of mortgage finance solutions including buy to let mortgages and bad credit mortgages.

While households have a lot of bills to manage, the monthly mortgage payment is the most important of the monthly bills.

Therefore, the mortgage is a priority, which is why one of the first measures announced by the Chancellor was the widespread availability of mortgage payment holidays. This was agreed on 17th of March 2020 with the Chancellor and banks agreeing to provide “forbearance” on mortgages. In simpler terms, this means banks are willing to offer help and be more tolerant with customers struggling financially.

The most prominent piece of assistance comes with the mortgage payment holiday. Initially, this is classed as a three-month payment holiday. Interest will be charged on the mortgage over the holiday period, which means there will be an increase in future payments.

However, this increase doesn’t have to be paid immediately when the mortgage payments recommence. Instead, the amounts will be added to the overall cost of the mortgage and incorporated into mortgage repayments.

How do I apply for a mortgage holiday?

While there has been significant notice about the availability of mortgage payments, they must be agreed with the lender first. Any mortgage holder who stops their direct debit without receiving confirmation from their lender will be deemed to have missed a payment.

This will be noted as a late payment, it will likely put the mortgage account into arrears, and it might harm the borrowers’ credit score. In turn, this will hamper the mortgage holder’s ability to arrange credit in the future.

Mortgage holders who agree a payment holiday will not have to worry about harming their credit score. Experian and Equifax have stated that credit scores will be protected when there is an agreed mortgage holiday in place. This is referred to as an “emergency payment freeze”, and it will result in a payment being “invisible” on the credit report, which will help the lender in the future.

Therefore, it is vital mortgage holders continue to make payments to their mortgage until a holiday has been agreed. Anyone who needs support from their lender should contact them as soon as possible.

Who is eligible for a mortgage holiday?

Mortgage holiday support is provided for people who are struggling financially. With standard mortgage holiday requests, lenders will scrutinise an application, and apply strict criteria to determine if a holiday period should be offered to the borrower.

However, in the current climate, these criteria have been waived. There isn’t even a need for applicants to prove that the Coronavirus has already affected their finances with most lenders offering people the chance to “self-certify” when it comes to their application. However, the applicant must be up to date with their mortgage payments.

The mortgage lender may well review if the mortgage holiday and impact on future payments will make the mortgage unmanageable at a later date. If the lender comes to this conclusion, they should try to offer an alternative solution which assists the mortgage holder.

Applying for a mortgage holiday

Currently, lenders prefer applications to be made online, as this reduces the impact on customer support employees. It is best to contact your lender as soon as you realise you need assistance. The more notice you can provide, the more likely it is you will receive support in a timely manner.

How long does a mortgage holiday last?

Currently, the mortgage payment holiday period has been listed as three months. However, there is no guarantee that people and businesses will be operational within three months, which may mean there is a need to extend the mortgage holiday period.

There is likely to be support and flexibility from leading lenders if the situation continues. Of course, if the period continues, the amount of interest will also continue, leaving the mortgage holder with a more significant amount to pay back.

If circumstances change or even continue, there will be further announcements. There is no desire to see many mortgage holders negatively affected by the Coronavirus, and this will likely be reflected in any additional measures introduced if required.

As things stand, at the end of the three-month holiday, the lender will contact the mortgage holder to assess their circumstances. Together, both parties will try to agree how to manage payments going forward to make up for the deferred payment. Lenders have a range of options to choose from, including altering monthly payments or extending the mortgage term.

Is a payment holiday a good idea?

Just because the option to take a mortgage payment holiday is available doesn’t mean that everyone should take it. There is a lot to consider, and while this support will be very welcome for many people, for other households, it will not be a good idea.

Mortgage payment holiday facts

A mortgage holiday is not free money

Applicants need to be aware interest is imposed on the months they take a break from paying. This will increase the overall amount of money that needs to be paid back.

The cost of interest is affordable for many people

While it is vital to note that a mortgage holiday isn’t free money, it will be accessible for many mortgage holders. With current interest rates being so low, additional monthly payments for a three-month holiday period will be manageable for many applicants.

With an agreed holiday, there is no damage to a credit score

Even though a mortgage holiday is useful in the short-term, there is a need for people to consider the long-term impact. As it is affordable, the additional cost shouldn’t be too challenging. With the news that anyone taking a holiday will not see their credit score negatively affected, this is one less thing to worry about.

It may be too soon for you to benefit from the holiday payments

When the mortgage holiday option was announced, many people reacted quickly and applied immediately. However, some of these people would likely have acted too soon. Not everyone is going to be affected in such a manner that their mortgage payments are in doubt.

Anyone who can manage their monthly mortgage payments should continue to do so as best that they can.

Other ways to reduce your payments rather than taking a mortgage payment holiday

Rather than take a payment holiday there could be other ways to reduce your outgoings to a more manageable level such as a remortgage by switching to another lender or switching to a different rate with your existing lender. Speaking to a mortgage broker that covers all lenders in the market is important. It is also good idea at this time to thoroughly review your bank statements and look for where savings can be made.

How to contact your mortgage lender to discuss a payment holiday

For further information about how your mortgage lender is supporting their clients through these difficult times you should visit their website – here are some quick links to help:

Barclays Bank

Coventry Building Society

Halifax

HSBC

Lloyds

NatWest

Nationwide

Santander

Each mortgage holder must review their finances and circumstances. A solution which is right for some mortgage holders will not be suitable for others. These are challenging times, and it is crucial people make informed decisions and receive guidance from trusted experts.

Get in touch with The Money Hub today As the finance experts specialising in mortgages, we’re on hand to help with all of your questions regarding mortgage payment holidays. To speak to a member of our helpful team, please get in touch and we will be able to assist!

DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.