Things are so unstable in the economy at the moment but what does that mean for those of us with mortgages to pay?
In these uncertain times the economy has gone into wartime measures, today we’re asking: what is a mortgage ‘payment holiday’?
A mortgage payment holiday is where the mortgage repayment is deferred for a period of time and the monthly payment changes to zero – however, interest accrues for the period.
What is a mortgage ‘payment holiday’ and can I get one?
If someone is experiencing a permanent reduction in income and a borrower is unable to afford anywhere near the full mortgage repayments, a mortgage ‘payment holiday’ is not the answer.
Where repayments are deferred for a time, the borrower will need to make up these repayments in the future, which could be over the remaining term. The ‘mortgage holiday’ option should only be used by those who can’t meet repayments because of the crisis and need to stabilise their finances.
Banks which have offered payment holidays have allowed those who have the virus or those who are healthy but have suffered a loss of income due to the virus to claim for the mortgage break.
What are the experts saying?
Stephen Jones, CEO of UK Finance, the trade body for the major banks, said: “Mortgage lenders will support customers who are experiencing issues with their finances as a result of COVID-19 and the options include a payment holiday of up to three months.
“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.
“Customers who are concerned about their current financial situation should get in touch with their lender at the earliest possible opportunity to discuss if this is a suitable option for them.”
Although the current suggestion is for up to three months, borrowers may get an extension if the crisis continues further.
Should I take a mortgage ‘payment holiday’
It is believed most borrowers will choose not to take the holiday if they can avoid it, as delaying also extends the borrowing period, which isn’t normally a good idea unless it is essential.
The monthly direct debit may also be increased to cover the amount added once mortgage payments are resumed.
Peter Ball, Mortgage and Protection Advisor for Concept Financial Services in Cannock, said: “This all depends on the individual’s circumstances and this is where speaking to a professional can really help because one rule does not fit all.
“My advice for clients has always been to ensure they have an emergency fund that covers at least three months’ outgoings for times like this. I’m aware that most people don’t have this currently, but you can start putting money aside now, as its always a good idea. Having your finances in order really helps and relieves a lot of stress. Using a credit card for emergencies is not advisable, as it will just cost you more down the line.”
Lenders are offering customers who are up to date with their mortgage payments and impacted by COVID-19 the ability to self-certify if they need help. Normally, the lender would assess the customer’s finances and consider what forbearance options may be the most suitable.
What about buy-to-let borrowers?
UK Finance says buy-to-let borrowers should contact their bank or building society as early possible to discuss the options.
Seek further advice on the mortgage payment holidays from: the Money Advice Service.