Borrowers who want to extend their mortgage holidays are likely to face tougher questions and greater restrictions as lenders attempt to discourage people from using the scheme.
So far 1.9 million struggling mortgage customers have been granted mortgage holidays to support them through the financial challenges created by the Covid-19 crisis.
According to the figures from UK Finance, the body which represents the banks and other lenders, one is six mortgages were subject to payment holidays or – to give them their official title – payment deferrals.
Homeowners taking the mortgage holidays were deferring, on average, £755 per month, the data revealed.
The news comes as many homeowners are due to reach the end of the three-month break and as lenders focus on ways to help customers take their next steps.
Now mortgage experts are warning it may not be so easy to apply for deferrals from now as lenders focus on offering the break to those customers who are in the greatest difficulty.
Restrictions
Charlotte Nixon, mortgage expert at financial planners, Quilter, explained the mortgage holiday scheme had to be implemented quickly to avert a crisis and, as a result, it came with only limited checks and barriers.
So, for many applicants, Nixon explained, there was no need to document specifically how and when their income had dropped. But now this looks set to change.
“Going forward, for borrowers that want to extend beyond the initial three months we can expect to see more restrictions and conditions,” she said.
“Lenders will put additional hurdles in place to discourage people from using the holiday unless they really need it. This should see some people re-start mortgage payments, especially those who applied for the deferral because they could, rather than because they really needed it.”
Real need
Indeed, Mark Harris, chief executive for mortgage broker SPF Private Clients agreed some mortgage holiday applicants might have applied for the break without needing it.
“We have come across borrowers taking them because the option was available and they were worried about running out of money, whereas support from the furlough scheme meant this didn’t come to pass,” he said.
And Harris also questioned the use of the word ‘mortgage holiday’ as a way of describing the deferrals.
“While UK Finance correctly refers to a payment deferral, the terminology is not the same across the board,” he explained.
“Even now some lenders are still referring to it as a payment holiday, which might give borrowers the wrong idea.”
Advice to borrowers
Nixon added: “It is important to remember that if you take a holiday, the interest still accrues and you will end up paying more over the long-term.
“So don’t enter into a mortgage holiday unless you really need to. For those that aren’t able to keep up with repayments, talk to your lender to get a handle on your options. It could be that reducing payments is better than waiving them altogether.”
