Mortgage Payment Holidays have become the most prominent buzz words in the mortgage market after the Governments promise that all borrowers will be able to have a three-month mortgage payment holiday if they need it.
While most lenders have said that they will abide by it and are keen to be able to look after their borrowers during this time of need, as usual, though, there is not always clarity or consistency.
There are also a couple of crucial things to note, which could save you some anguish in the months ahead.
Here we have taken the time to look through as much of the information as possible, as well as continually keeping in touch with lenders as they develop their response.
We feel that it is best to summarise what mortgage payment holidays are, what lenders are doing, and who can provide you with help and guidance through these next few months.
Mortgage payment holidays are an agreement entered into with your bank, building society or mortgage lender to defer your monthly mortgage payments for a set period. In this case, 3-months.
It does not mean you never have to pay the amount back, but the interest you defer is added back onto the loan amount, while your capital balance will not decrease. In other words, your mortgage amount will increase slightly, and you will continue to attract interest on the whole amount.
When you are ready to continue the payments, this could mean that either your monthly payments are recalculated at a slightly higher level, or your mortgage term is increased somewhat. Most lenders will probably prefer not to extend your mortgage term as this could take you past their standard retirement ages, but the detail on this will follow in due course.
Dependent on your mortgage deal, you may be able to pay off a lump sum later in the year to bring your mortgage back to where it would have been.
Mortgage Payment Holidays are available both for those with residential or buy-to-let mortgages, which means landlords also have assistance if rental payments are affected.
The full proposal is in detail below:
• Mortgage lenders will offer an automatic 3-month mortgage payment holiday for customers impacted, directly or indirectly, by COVID-19.
• The mortgage payment holiday will apply to customers who are up to date on their payments, not in arrears, and wanting to self-certify that COVID-19 impacts them.
• This means that lenders will not complete an income and expenditure assessment, or evaluation of alternate payment options as ordinarily required under MCOB.
• This proposal will allow lenders to be more responsive to customer needs and offer forbearance in a simple way to customers in an environment where COVID-19 also impacts the operation of collections teams made.
• Customers will be made aware that interest will accrue in the holiday period and they will need to make up deferred payments in the future.
• Customers who wish to undertake a full assessment of their ability to pay or financial difficulty may still do so.
We would recommend speaking to your Mortgage Advisor in Birmingham. They will asses your financial situation first before looking to defer your payments as your situation may not yet be pressing.
Approaching a Mortgage Broker in Birmingham like us will allow you to explore all of your current mortgage options and could make things feel a lot less stressful.
For a customer, up to date with payments, not in arrears and impacted by COVID-19:
• The customer would contact the lender and inform them that they are affected by COVID-19.
• The lender would accept these details from the customer and offer an automatic 3-month mortgage payment holiday.
• no evidence will be sought from the customer.
• The lender makes the customer aware that interest will accrue and 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, while ensuring that the mortgage remains affordable and sustainable.
• The lender notifies the customer that if they wished to complete a full assessment now, there might be other forbearance options more suitable to the customer.
In some cases, a mortgage payment holiday can have a negative impact on your credit score, but most lenders have now said that for cases linked to the virus, they will ensure that this is not the case.
You must ask this question to your lender directly and record the response, including the date and the name of the person you are speaking to avoid confusion later. Different lenders are doing different things.
At first, everything seemed like it would remain exactly the same and you would still be able to make changes to your mortgages as normal. This has changed in the last couple of days and lenders have been asking borrowers to avoid making changes whilst you are within a mortgage holiday period. So, at the moment they are not allowing mortgages and product transfers.
Borrowers nearing the end of their existing product may be forced to move on to the higher lenders variable rate. This could mean that borrowers who act too early could find themselves on a mortgage payment holiday that accrues interest on a costly variable rate.
We would highly recommend speaking to your Mortgage Advisor in Birmingham they will determine the best course of action based on your personal and financial situation. If possible, arranging your mortgage transfer first then asking for the holiday would seem to be the most sensible way forward.
At the moment, no Lenders have withdrawn mortgage offers; in fact, some are extending offers past the standard six-month expiration date.
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 usual for now and “wait and see” – you are not committed to completing your purchase until contracts get exchanged.
In some cases, lenders can offer you a temporary switch to interest-only in order to reduce your monthly payments but not to add any further to the loan amount by still servicing the interest payments each month.
It may not be necessary to convert all your mortgage to interest only, and it may be that putting part of the mortgage on this basis could give you the breathing space you need.
People with savings may find that remortgaging onto an offset basis could give them a helping boost they were looking for, they will be cutting down on their monthly payments whilst keeping hold of their savings.
For example, someone with a £400,000 loan and £100,000 in savings would only pay interest on £300,000. This will massively reduce their monthly mortgage payments.
For others, a straight remortgage to another lender, calculating the cost of any early repayment charges, may well be enough to ease the burden or simply extending the term of your mortgage.
If you still have any other questions on mortgage payment holidays or just want general Mortgage Advice in Birmingham, give us a call today. We want to help you and your mortgage journey through these tough few months ahead. Speak to an experienced Mortgage Advisor in Birmingham today.