Coronavirus has had an impact on many key areas for consumers. Job losses through redundancy and loss of income through reduced hours and closure of workplaces, has become an all-too familiar reality for many. It means that already-tight budgets are being stretched further and household expenditure is being pushed to breaking-point.
In September, the Financial Conduct Authority (FCA) highlighted that the value of all outstanding residential mortgages at the end of the second quarter of 2020 was £1,513.3 billion, which was 3.2% higher than the previous year. In addition to this, the total number of mortgages with arrears was 196,142 (1.46% of total loans). This is an increase of 23,818 consumers since the end of the first quarter of 2020.
With so many consumers struggling, many lenders are offering mortgage payment holidays for three months (or more with additional agreement), to allow their customers breathing space to get back on their feet and help them get through the next few months.
Payment Holidays – What are they?
Some banks and other lenders are offering three-month payment holidays for those impacted by the coronavirus outbreak. Consumers suffering from a loss of income or ill-health are advised to contact their bank or lender in the first instance.
A mortgage payment holiday (or deferral) is a period that a customer can agree with a lender, where they do not have to make mortgage payments.
Mortgage customers have until 31st October 2020 to apply for one if they are struggling to make payments (in this instance, due to coronavirus). Those who have already taken a payment holiday but are struggling with payments also have until this date to apply for another full, or partial payment holiday.
Anyone applying for either a payment holiday, or partial payment holiday should remember:
- these are just temporary solutions, and the outstanding amount will have to be paid back later.
- interest will continue to build during the period (unless confirmed otherwise by the lender), and payments may be higher after the repayment holiday.
- you are likely to end up paying more back in the long-term.
- if you can afford to repay your mortgage, it is in your best interests to do so.
- all payment holidays / partial payment holidays should be agreed with the lender.
- do not cancel direct debits, without speaking to the lender first, as cancelling your direct debit is not a payment holiday and will be counted as missed payments. This could appear on your credit file and impact on credit scores, which may impact on your ability to re-mortgage in the future.
What does this mean for future payments / my mortgage in the long-term and will it affect my credit rating?
In real terms, a payment holiday will mean the payments that would have been made over the three-month term will be divided across the remaining payments of the mortgage. This would mean an increase in monthly payments at the end of the repayment holiday. Some lenders are offering options to switch rates or extend the mortgage itself.
Mortgage providers have advised that these options will not have an impact upon credit ratings if agreed with them in advance, and when all agreed payments are made.
This is an option for those who have been impacted by a loss of employment, or a reduction in hours due to the pandemic. If you can afford to pay your mortgage and have not experienced such losses, you should continue to do so.
Moving into the winter months, many will have increases in utility bills, such as electricity and gas and for those already struggling financially, this can mean finances become even tighter. By reaching out to your lender if you are struggling, you may be able to get the help that you need.