Q&A on Mortgage Payment Holidays in the Covid-19 Environment
We have been receiving many questions from our customers who are, understandably, worried and confused given the ever changing environment relating to the Covid-19 outbreak.
We have pulled together the most common questions below to support our customers during this time. Our branches remain open, working remotely so please phone any of the numbers on the website for more information.
Q1; What is a mortgage payment holiday and how does it link to this virus?
A Mortgage payment holiday is a break of 3 months for borrowers to help them restore financial stability. Borrowers who have been impacted by Covid-19 will be offered Payment Holidays of up to 3 months, during this time mortgage payments can be stopped. This is constantly under review with the fast and ever changing response to Covid-19.
Q2; Is a payment holiday suitable for everyone?
No, as a mortgage payment holiday is to help during a time of reduced or lost income due to the virus, then if you are still receiving full pay or even your basic salary, regardless of whether you are working or not, then there may be no need for a payment holiday to be requested. Granted some professions include significant income for overtime and bonus/commission but if the vast majority of your income is basic salary, for the period you receive this, you are unlikely to need a mortgage payment holiday.
Q3; What happens to my mortgage on a payment holiday?
You should consult your individual lender in regards to this.
The perception is that your mortgage term will be just extended by 3 months if you take the 3 month payment holiday however this is unlikely to be the case. Even a short term extension by 3 months is deemed as a contractual change on your mortgage. Therefore, the vast majority of lenders will recalculate the monthly payments at the end of the payment holiday, and these will result in an increase to your monthly payment. The balance owed on the mortgage will increase because the interest which is due each month will be added to the total amount owed, for the duration of the payment holiday.
Q4; So my current payment is likely to increase slightly when my payment holidays ends then?
Yes and if you also have a mortgage were your deal is up for renewal within the payment holiday period, then you need to check first with your individual lender what their policy is on this before you request the holiday, it may be better to witch your mortgage deal before requesting the holiday.
Q5; If everyone else seems to be requesting a payment holiday then why shouldn’t I?
It might feel that is the case but if you haven’t had any impact on your income as yet then you probably shouldn’t be requesting a payment holiday. Neither government or any lender has indicated if there will be further opportunity to request another 3 month payment holiday if you request one now. Don’t jump too soon as you may only be able to use the payment holiday option once ,so for example if you are getting paid this month and can they pay the mortgage then you should keep the option for a payment holiday when absolutely necessary.
Q6: Are there any other options for my mortgage?
Yes; most lenders will let you change to interest only rather than take a payment holiday for the full mortgage payment, this is a better for lenders and means that no interest is added to your overall debt when they recalculate your payment. The biggest challenge may be being able to speak to someone about this when they are handling so many enquiries at the moment.
Q7: So how do I request a payment holiday if, after everything, I know it’s right for me?
Most lenders now have an online facility if you access their website and type in Mortgage Payment Holiday, however there are still a few who haven’t provided this facility as yet. They may provide a contact telephone number but be prepared for a long wait. You can find a list of useful contacts on our website.
Q8; What happens after the 3 month payment holiday is up?
Whilst all lenders have guaranteed that if a customer applies for a payment holiday and is accepted, this will not impact their credit file, you still need to request it rather than just cancel your direct debit. Many people pay their mortgage at the start of every month so check the usual date your payment is made and then contact your lender preferably using their online process but only if it’s the right thing for you.
Q9; What about payment holidays for other things e.g. personal loans, home and life insurance policies etc?
There has been no government intervention with regards to payment holidays for unsecured debt so if you are struggling to pay these then you need to contact your lender ASAP and request how they can help you with this.
Q10; I’ve heard of people trying to call their bank and being on hold for hours on end and still not getting to speak to the right person to help them. What should I do to avoid that?
As Martin Lewis often says, contact your broker as they have access to all the lenders and will know what each lenders policy is regarding mortgage payment holidays and can help with any other questions you have.