New free tool to help borrowers apply for mortgage payment holidays

It has been created by Koodoo, a mortgage fintech whose digital mortgage platform powers some of the UK’s price comparison sites and lenders.

The firm has worked round the clock for the last week to bring together lenders, price comparison sites and trade bodies, to develop a free personalised digital tool hosted at ​mortgageholiday.co.uk.

What does the payment holiday tool do?

Using the free tool consumers will be able to:

• Access content and FAQs related to mortgage payment holidays
• Understand their lender’s guidance on mortgage payment holidays
• Select how long they would like a payment holiday for
• See a personalised payment holiday illustration, i.e. what their payments will look like for the next three months, how they will increase after the payment holiday relative to what they pay now, and what the overall cost of this is
• Apply for a payment holiday with their lender

Confusion over what is a payment holiday

Payment holidays are poorly understood by many borrowers and some have assumed they can simply cancel their direct debits without contacting their lender.

This would place the customer in arrears, impacting the customer’s credit score and initiating lenders’ debt management processes with consequences for the customer’s ability to borrow at reasonable rates in the future.

It is vital that customers contact their lender to agree to a payment holiday with them before changing their payments.

Some customers assume a payment holiday is a waiver of payments or “free money” when in fact they are effectively increasing their borrowing and will need to repay the payments missed with interest later.

For some customers there may be better options available such as reducing monthly payments or switching to an interest-only arrangement.

Lender call centres have been swamped for the last two weeks with anxious customers calling to understand what is available to them and lenders scrambling to staff them as their workforce has moved to working from home.

Some lenders have developed digital application journeys rapidly and are encouraging customers only to apply for a holiday if they really need one and to use online services where possible to ensure the most vulnerable customers can get the help they need.

What happens when payment holiday ends?

The challenge today for lenders is to field the huge number of customer enquiries and process payment holiday applications. In three months’ time, they will face a new challenge of agreeing with each customer how to make up the payments missed during the holiday.

There will be a number of options available, including adding the payments to the loan amount, agreeing a payment plan over a period of time and extending the term of the mortgage.

It is not clear yet which lenders will offer what choices to customers and how they will communicate these but there will undoubtedly be a strain on lenders’ processes.

Comment

Seb McDermott, Koodoo CEO and co-founder, said: “At this difficult time, it’s vital that consumers have the support they need to make the right decisions about their mortgage and understand the options available from their lender.

“We mobilised the Koodoo team and digital mortgage platform to help and have been overwhelmed by the support we have received from lenders, consumer sites, brokers and the fintech community.”