Have you been hit hard by the Coronavirus pandemic? If so, you’re not alone. Millions of people around the world have suffered financial setbacks due to the recent spread of Covid-19. The unemployment rates are soaring and people are struggling to pay their bills. This is especially true for homeowners staring down monthly mortgage payments.
The good news is, governments are taking the necessary steps to ensure homeowners aren’t displaced during this difficult time. In an effort to protect household income, you can now apply for a 3-month mortgage payment holiday. This is the second mortgage holiday granted by both the government and the FCA since the Coronavirus pandemic struck in March 2020 and applies to both homeowners and landlords. The deadline for this new payment holiday is 31 October 2020.
The original payment holiday was created to help give homeowners and landlords a little financial breathing room if their income had been drastically impacted by Covid-19. Since its creation in March 2020, nearly 2 million households in the UK have taken advantage of this program. The average savings from deferred payments was just over £750. Anyone applying for the scheme can contact their mortgage company and defer payments for up to three months. Once the scheme ends, they must resume payments as normal.
Some things to keep in mind when utilizing this scheme are:
Make smaller mortgage payments monthly (if you can)
The deadline to request a payment holiday is 31 October 2020
Applying for a payment holiday won’t negatively affect your credit score
Mortgage companies and banks are not authorized to repossess your home or property during this 3-month period
The Application Process
Here’s how you apply for the mortgage payment holiday.
First, contact your mortgage provider or lender and inquire about a payment holiday. Most mortgage providers have a page on their website dedicated specifically to this process. The application process should only take a few minutes. Applicants aren’t required to provide any proof of financial difficulty or hardships or undergo an affordability check. The best part is, the application process is streamlined and you should receive a quick response (as long as you apply by the deadline).
Already applied for a mortgage holiday? Don’t worry! You’re still eligible to extend your payment holiday by another 3 months! Some mortgage lenders, however, are slightly suspicious of this behavior and may investigate further to ensure applicants aren’t trying to avoid mortgage payments altogether.
What Fees Are Associated with Mortgage Payment Holidays?
Many mortgage providers and banks are issuing 0 fees for taking advantage of a mortgage payment holiday scheme. Others charge a fee, but it’s minimal — averaging around £15 or less. Be sure to check your mortgage provider’s terms and conditions before making any decisions. You are, however, still responsible for the interest payments on your mortgage. These are also deferred and added to the end of your loan term. Keep in mind, you’re not saving money or getting out of paying your full mortgage by applying for a payment holiday. Instead, you’re simply taking a break as you recoup your finances and recover from whatever Covid-19 impacts you’re currently facing.
How Do Mortgage Payment Holidays Work for Buy-to-Let Properties?
Technically, buy-to-let properties aren’t regulated by the FCA and have their own set of rules and regulations regarding payment holidays. In many cases, banks are generous enough to accept mortgage holiday applications in the hopes that landlords will pass these savings onto their tenants who may also be in need of a financial break.
Buy-to-let mortgages allow property owners, investors, and landlords to borrow money against an existing property and then rent it to interested tenants for passive income. In the face of the Coronavirus pandemic, landlords are feeling the pressure to give breaks to their tenants, as well, including payment holidays and fewer rental fees. This only seems fair, especially if landlords are receiving a financial hiatus from their own mortgage companies.
Do Mortgage Holidays Affect a Person’s Credit Score?
The short answer is no. Neither applying or receiving the payment holiday will negatively impact your credit score. In fact, it won’t even be noted on your credit file and you don’t receive a penalty even if your application is denied. The same doesn’t hold true if you apply for a mortgage payment holiday at any other time (not because of Covid-19). Applying for payment holidays can impact your credit score and will be noted on your file. This indicates to future lenders that you’re unable to meet your financial responsibilities.
What Does This Mean for Current Mortgage Applicants?
Are you currently applying for a mortgage? The FCA confirmed that all mortgage lenders can proceed with pre-approved or existing applications during this time. Just beware — some mortgage lenders are creating more restrictions and tougher guidelines for future applicants.
FCA Comments Regarding Mortgage Payment Holidays
So, what does the FCA say about this new mortgage payment holiday scheme? Christopher Woolard, FCA’s chief executive, was quoted saying that anyone facing hard times is welcome (and encouraged) to request help from their mortgage provider. The FCA recognizes that the Covid-19 pandemic has created an ongoing situation and encourages homeowners and landlords to make small monthly payments whenever possible, even if they’re utilizing the payment holiday. This makes it easier to return to regularly scheduled payments and prevents borrowers from falling too far behind.
Woolard noted that most people who took advantage of March’s payment holiday are now in a better position to make regular monthly payments. Some people who once reported fear of losing their jobs or homes are now able to pay their mortgages following the first 90 day holiday. Woolard also recognized that lenders may be feeling the short-term financial effects of non-payment, but that borrowers are feeling the long-term effects of rolling interest payments and extended mortgages. He goes on to encourage anyone not facing hardships due to the Coronavirus, to avoid applying for a payment holiday and to continue making their monthly payments on time.
Who Should Use a Mortgage Payment Holiday and Why?
For those who need it, mortgage payment holidays give you a 3-month reprieve from mounting bills. This scheme gives you the time you need to regroup financially and return to good standing. It isn’t, however, a free ticket to not make your mortgage payments. You will, eventually, need to return to a normal payment schedule. You’ll also face any rolled-over interest rates. Mortgage payment holidays are perfect for anyone who needs a break and time to recover financially in the face of the Coronavirus pandemic.
For those looking to remortgage their home, taking advantage of this payment holiday may not look good on your application. Some lenders might view your need for a payment holiday as a sign that you can’t make regular payments. They may even go as far as to reject your application or apply exorbitant fees.
When deciding to apply for the most recent mortgage payment holiday scheme, take a good look at your current and future finances. Only apply if you really need to and if you know that doing so won’t cause even more financial hardships after the 3-month period ends.