Mortgage Payment Holidays

Recently, we have noticed borrowers coming to us about Mortgage Payment Holidays and the way that they work.

The suggestion is that 1/9 mortgage holders have taken one out since the outbreak of COVID-19, they are becoming quite popular.

Here at your local Mortgage Broker in Nottingham, we have noticed a large number of borrowers asking us what the best ways to go about it are and what we would recommend for their situation. So here are some of the most commonly asked questions about Mortgage Payment Holidays and the answers from Malcolm’s BBC Radio Interview with David Burns on the 15th April 2020

Are many people taking a Mortgage Payment Holiday? Is it worth doing, is it sensible?

“Well, the suggestion is that there a high number of people that have taken out a Mortgage Payment Holiday. We have had numerous enquiries about this particular topic and banks have had to redeploy a number of their staff that would usually be processing applications to take the incoming calls as they have a much higher workload. It seems that everyone wants to take one out, or they are just rushing into it, which in fact, they should take their time.

With applying for a payment holiday, there are a few things that you will have to look out for. Firstly, it’s important to know that the mortgage payments you’ll be taking a break from will not get written off, you will have to make up these payments at a later date, and you can do this in a couple of different ways.

Another important aspect is to avoid cancelling your direct debit, the payment holiday has to be an arrangement between you and your lender/bank/building society, so if the borrower were to just go ahead and cancel the direct debit, then they would be running the risk of their lender marking arrears against their account which is not a good thing. This could heavily impact your ability to get a mortgage or other credit in the future.”

Will I end up paying more money back overall because of default interest?

During the BBC Radio show, the platform opened up to the public where Malcolm offered to answer questions. We got a really good response and were 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”

“My advice to anyone who ponders on question such as this is that if you are able to continue working in your job and your finances are unaffected, you are completely right, there’s no reason to take a mortgage payment holiday. The scheme was basically designed to help people whose income has been affected – an example being, they might have been laid off through work, or furloughed. So, there are lots of people out there that do need this in the current climate, and she is absolutely right the payments will need to be made up at a later date further down the line, often by higher monthly payments.

In terms of making up the missed months, you might be faced with an increase in your monthly mortgage payments. What most people may not realise is that it could only be a small amount such as £10 or £20 a month, depending on the size of your mortgage term. So ultimately, it may not be that bad of an idea if you are really struggling to afford your payments at the moment.”

Do you have to prove that you are financially struggling?

“No, you do not, the FCA has issued some guidelines to lenders and this is stated. You do not have to prove that you are suffering from financial hardship, you can just make the request and they should handle it sympathetically and grant the request. There are other guidelines in place that they need to follow, such as, the payment holiday should not be recorded on the customer’s credit file to impact them getting credit in the future.

Even if the customer does not ask for a payment holiday, they may call in about their payments and from this, lenders should automatically offer the mortgage holiday option. So, it is not just the borrowers who should ask for a payment holiday it is also the lenders responsibility to do so.”

I have been furloughed, do my mortgage payments get reduced by 20% too?

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 by this are you also eligible to pay 80% of your mortgage payments?

“I think that if you were being furloughed and you think that your income is going to be adversely affected, you may as well take the first three months now rather than cause yourself any potential sort of additional struggles or confusion down the line just in case the scheme gets pulled in a couple of months when you could potentially need it most at a time like this. If you’re questioning your ability to meet your mortgage payments in any way, taking one now might be your best option. Most customers are acting on it straight away and starting the 3-month break from now whilst it is available.

The situation is changing rapidly and we are also experiencing what lenders are doing on new mortgages as well; we are in a completely new world to how we knew it. The offer is there at the moment for the 3 month payment holiday, if you don’t need it, it’s important to not take it, if you do, then make sure to accept it straight away.”

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