Mortgage payment holiday to prevent property repossession amid coronavirus crisis
Unleashing a package of measures that were unthinkable even just a week ago, Rishi Sunak unveiled a life-raft of loans and grants available to small and large businesses, to help protect jobs and keep the wheels of the UK economy turning in the wake of the current health crisis.
- Coronavirus: Rishi Sunak announces 3 month mortgage holiday
As part of his announcement, the Chancellor also confirmed that today, UK mortgage lenders have agreed to offer three month ‘mortgage payment holidays’ to help ease the financial burden of borrowers who are either unable to work due to suffering from Covid-19, or if they lose their job as a result of the economic shockwaves we’re currently seeing.
But what is a mortgage payment holiday? And why are the measures agreed by many banks today so unusual?
A mortgage payment holiday usually means that a borrower who is unable to pay their mortgage is able to agree with their lender not pay their mortgage for an agreed period. These missed payments are then added to the overall term of the mortgage.
In other words you do have to make those payments at some point – it’s not ‘free money’ – and the overall length of time of your mortgage will be extended by the amount of time that you take the payment holiday for. But as a short-term measure, it can prevent a homeowner from falling into mortgage arears, which can lead to repossession.
What’s different today though is that normally, if a payment holiday is granted by a lender, this would mean that the borrower’s credit file is negatively impacted.
In other words, the next time they apply for a mortgage or loan and a lender checks their credit file, they will see that they have note about the payment holiday being needed previously, which could impact their ability to borrow in the future. In mortgage terms, this is known as having an ‘adverse credit history’.
By saying today that any borrower who does need to take a payment holiday won’t have their credit file marked – in other words this will crucially mean that they don’t end up with an adverse credit history – the banks have taken steps towards ensuring that homeowners are able to stay in their homes, and that when they come to move or remortgage, won’t be penalised for asking for assistance when they’ve needed it the most.
So, if you need one, how do you agree a payment holiday with your mortgage lender?
Mark Harris of mortgage broker SPF Private Clients advises, “Lenders tend to be reasonably sympathetic to any illness that affects a borrower’s ability to pay their mortgage, whether it’s coronavirus or something else.
“They may ask for evidence that you are unwell but the message to borrowers, particularly the self-employed who are most likely to be affected in terms of their income, is that anytime you are struggling to pay your mortgage, get in touch with your lender. Don’t bury your head in the sand and hope the problem will go away – it won’t.”
Mark also advises that borrowers who are struggling should ask for help as early as possible, rather than ignoring the issue and hoping it will go away, saying that “While lenders should offer support to borrowers, they can only do that if they know there is a problem.”
“Keep a note of any conversations or correspondence you have with the lender about a payment holiday, as if is not marked down correctly and is noted as arrears, there could be an issue when you come to remortgage in two or three years’ time. But if it is marked correctly, it shouldn’t harm your credit rating.”
Also commenting on this new level of support for mortgage customers, Stephen Jones, CEO of lending body UK Finance says, “Monthly mortgage payments tend to be the largest outgoing for the vast majority of households and lenders are keen to reassure homeowners that the industry is working hard to put measures in place to support them during these uncertain times.”
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If you find yourself in difficulties with your mortgage, it’s worth bearing in mind that all lenders will have slightly different processes around agreeing a mortgage payment holiday, so if you find yourself in any doubt around your ability to pay, call your lender or mortgage broker as soon as you can and start a dialogue with them.
Follow up anything you agree with an email and ensure you’ve got paper-trail in case you need it for future reference. There may be a form you need to fill in, or you may have to provide evidence of job loss or illness. But don’t be frightened or embarrassed to have this conversation.
In the coming days, it’s likely that pressure will be put on lenders to give landlords payment holidays on Buy to Let mortgages as well, on the basis that they pass this on to tenants who rent privately and who may also be facing financial hardship. Should this happen, it would again be an unprecedented move by UK banks.
But as Mr Sunak said today, “We’ve never in peacetime faced such a challenge…It’s a time to be bold, and a time for courage.”
Let’s hope that the UK banks rise to that challenge to keep as many people in their homes as possible in the weeks and months to come.
HOW DO I AGREE A MORTGAGE HOLIDAY WITH MY LENDER?
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