The government is to support households affected by coronavirus by providing mortgage payment holidays of up to three months.
The self-employed are likely to be the biggest beneficiaries from the pledge, made yesterday evening by the chancellor Rishi Sunak as part of the package to support people through the financial fallout of the pandemic.
But how do you go about taking your ‘mortgage holiday’, how will it affect your credit report and what will the impact be once the three months is up? We take a look in a bit more detail….
How to take a mortgage holiday
If you are worried you may be unable to pay your mortgage because of restrictions in place due to coronavirus – the first step is to contact your lender.
Before the chancellor made his announcement, a number of lenders had already announced they had plans to offer forbearance to mortgage customers who faced financial difficulties. Among the first were Lloyds Banking Group and NatWest, which offered respite for customers affected.
The latest measures put forward by Rishi Sunak will, say experts, provide extra reassurance to anyone with concerns about managing what is, most likely, their biggest outgoing.
According to the Building Societies Association (BSA) under normal circumstances lenders would assess the customer’s finances first to decide upon the most suitable form of support.
But this process is being waived, to allow firms to put in place a more straightforward system.
A BSA spokesperson said: “Should the customer wish, the lender could conduct a full assessment of their finances.
What are the pros and cons of ‘holiday’?
The advantage is clear – if you do not have the money to pay your mortgage, lenders will allow you a break from all or some of your monthly payments. It will provide you with some much-needed breathing space.
There are, however, some things to consider. Many mortgage brokers have emphasised this morning that what’s on offer is a break not free money.
Mark Harris, chief executive of mortgage broker SPF Private Clients, explained the interest will still be calculated over the period of the payment holiday and then added to the loan, along with the repayment part of the payment.
This means the monthly direct debit will be increased to cover the amount added once you resume your payments.
He added: “The important thing is to ask for help as early as possible rather than ignoring the issue. While lenders should offer support to borrowers, they can only do that if they know there is a problem.”
A payment holiday may not be suitable for everyone, as such lenders will speak to you about a tailored approach to your own personal needs and may offer alternatives.
How will the ‘mortgage holiday’ impact me later on?
As mentioned previously, you will most likely see an increased payment on your direct debit to account for the loss during the holiday.
The advice is to speak to individual lenders about this as they will be able to answer your questions in more detail and help you find alternatives, if necessary.
Rob Griffiths, director of the Mortgage Market Alliance, advised, during the conversation to get to know as much as about the details of the arrangement as possible.
You should ask them specific questions on what this will mean for your payments, the length of your mortgage term and how it might appear on your credit file, he said.
Griffiths said: “This is not the lender paying the borrower’s mortgage for them for a three-month period but a deferment of these mortgage payments into the future.
“With that being the case, borrowers should get the detail of any such arrangement and use their mortgage adviser to provide an explanation of what this actually means for them, and to understand what (if any) other options might be available.”
What will happen to my credit rating?
According to the BSA, lenders will make efforts to ensure forbearance offered under these circumstances will not result in an adverse impact on the customers’ credit scores.
What you must not do is simply stop making payments without speaking to your lender. If you do this you will go into arrears and this will create a big black mark on your credit file which could prevent you borrowing in the future.
Chris Sykes, mortgage consultant at Private Finance, said: “Customers need to be mindful that pre-emptive action will be key to making the most of a mortgage holiday. It will be important to agree deferred payments with their lender in advance, so they are not recorded as missed.”
Will three months be enough?
We thought we were experts on ‘uncertainty’ thanks to the ups and downs of Brexit. But clearly that was just a rehearsal… How the effects of the pandemic will develop is unknown. As such, it’s almost impossible to say whether three months will be much of a reprieve for those who cannot work and pay their mortgage.
Charlotte Nixon of Quilter Financial Planning, thinks the three month holiday may well change if guidelines on social distancing and isolation continue.
“At this uncertain time three months may not be enough for some people but Sunak did mention that this was just the next step of the government’s measures so borrowers may still be set to get more if the crisis is prolonged further,” she said.
Some lenders may also offer longer periods – so make sure you ask the question when you speak to them.
Interest rates
Last week the Bank of England cut interest rates to 0.25% in a bid to reduce the economic impact of coronavirus.
If you are on a tracker mortgage, this cut should start impacting your repayments immediately.
Nixon said for homeowners, this is likely to mean that the low interest borrowing available at the moment will probably continue to be on offer for some time to come.
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I have tried and tried to call my mortgage supplier
I was ringing Godiva homeloans yesterday ringing and ringing for 1 hr 29 mins with no reply and the other 2 both just said we are unable to connect at this time!
I have written to them all now as no email available.
All my tenants are self employed and their work has completely dried up! What am I meant to do ?
Will there be any impact on my credit report?
The FCA (Financial Conduct Authority) has recently updated guidelines on ‘mortgage holidays’ and coronavirus and said: “In accordance with section 8 of the Steering Committee on Reciprocity Data Quality Reference Guide, the account of the customer should not be recorded as having any form of detrimental arrears. There should be no negative impact on the customer’s credit score because of the payment holiday.”
This is not good enough, some people only just manage to pay their monthly mortgage. How will they manage if their payments go up after, say, the min of 3 months Mortgage holiday break. The amount should be added on to the end of their term i.e. extending their mortgage by say another 3 months or whatever is needed during this unsettling time.
Due to the pandemic My husband and I are unable to work and will have absolutely no income . So we would like to apply to have a mortgage holiday on our buy to let mortgage as our tenant has also lost her job . Please help .
The advice at the moment for anyone who thinks they may be entitled to a payment holiday is to contact your lender directly. Good luck and keep us posted with how you get on.
We are in the same boat I hope my other tenants pay or we are in a right mess as the rent guarantee insurance isn’t paying out either
Very well presented!
My mortgage is with Halifax, their website has crashed, you cannot call and they say they will let you know later if you are successful or not with the application via automated email. Natwest, after 2 hours hold told me any freeze to loans with them will affect my credit score as my file would report ‘unpaid’. My wife and I are the sole employees of our own Ltd company and all our work is overseas so we cannot travel. She is also 7 months pregnant and we now have no income. Frightening times ahead.
Hi, If you could please provide information about your calculaton in regards to mortgage holiday payment for 3 months , for example a period of 20 years and the existing monthly payment is £1000, that would be great. Becuase we have to take the right decision if in case it won’t affect us hugely in the future payments.
What happens if I obtain say a 3 month mortgage holiday and later find i only needed 2 months and could pay month 3.
Would the lender recalculate the added interest if I ended up only needing 2 months?
This may happen if the government do come up with ££support for self employed
The payment holiday is for up to three months so yes you should be able to just do it for two months but speak to you lender in good time for this.
My lender First Direct has no provision in place whatsoever so far, despite 5 phone call after hours and hours on hold I am still no closer to receiving help from my lender. I was reduced to tears, the company line is:
lots of people in your position, so kind of get over yourself
every time you call there is a different number to call, you are passed from pillar to post
call backs never happen even though they are promised
IT system keeps failing – on one occasion after taking two hours to speak to someone. they simply hung up on me when their system started to falter
The overriding impression is to make it as difficult as possible – I was sobbing on the phone begging for help and in the end I was just told I need to wait for someone to call me back – they couldn’t even tell me what the process was when someone calls me back.
As soon as my fixed term finishes I shall be moving my mortgage and when I am back to work I will also be shutting my current account
First Direct is part of HSBC and they have not in the past allowed payment holidays so their technology systems are not set up for this. The bank says it has now built the systems in just 2 weeks, so hopefully things should start to improve. If they know you are attempting to apply for payment holiday they should honour this.
We asked NatWest for 3 month mortgage holiday as we have lost a lot of money because of Coronavirus. However, to cover 3 months @ £1300, NatWest will charge an extra £30 per month for the remainder of the mortgage = 16 years. So to borrow £3900 we will need to pay back £5760. Almost 50% interest. Thanks for nothing.
Thanks for posting this. I knew there must be a catch somewhere, but no one is spelling it out for us. Ridiculous that the banks are going to cash in on this terrible situation!
I am currently on hold regarding the extortionate amount of interest they are requesting. They want an extra £154 a month for the next 5 years remaining of my term, this amounts to over £9000 for a £6000 loan. At current interest rates I could get a £6000 loan over 5 years for les than £100 a month!!!
I have been on the phone from the morning till it cuts me off in the evening. 8 hours being my longest. I can’t ask them without being able to get through. Its been days I know they are busy, I did apply on line and was able to secure it but they will take the next payment as I didn’t do it at least 10 days before. Me and my partner stopped working after this so didn’t know where we stood. Now they are going to take the next payment soon I was wondering do you think if I cancelled the direct debit and explain when I get through to them? As we have been approved but need this month as we have no work and just need a little to keep back. We are both self employed me a hairdresser and him a roofer. We can’t work as he can’t get materials as the shops are closed and I can’t cut hair. Anyway my point is do you think if we cancelled it would affect our credit? Even though I have proof of phone calls trying to get through, since Monday.
Holding on the phone for that long is terrible. Don’t cancel your direct debit as that will put you in arrears and will impact on your credit score. You could try to speak to a debt charity such as StepChange or Citizens Advice if you are struggling financially. They will also no doubt be busy so perhaps email them first. Make sure you use a free debt charity and not one that charges fees.
could taking a mortgage holiday affect remortgage going through? Also if option to take a holiday is used should the new lender be informed or is this automatic?
Hello, I have a commercial mortgage , it’s for a semi commercial property . Obviously I’m self employed ,no income now ( hairdresser) . Cannot pay anything . Already energy suppliers giving gentle nudges for readings ,I won’t be paying , if I haven’t got it ,how can I? All this promise of help , but noone is available to deal with us . My son is also self employed ( different capacity ) his car insurance was due & they stated on webpage covid help ,but when it came to it , if he couldn’t pay , they’d cancel & he would owe entire year ? . Not helping is it? So I paid on my credit card for him ,tho I can’t afford his car insurance ,I’ve sorn my car until this is over. I’ve written to my debters as my mortgage ,for instance is not a high street lender & offers no email contact @ all . I’ve told them I’m stopping the direct debit ! What else can I do ? No savings , if they aren’t contactable , I have to safeguard myself for today . I’ll likely go out of business & loose my home through this .my lender charges libor interest & it’s much higher than baserate . If they put payments up after covid ,I couldn’t do it anyway! Not everyone has an understanding lender or landlord . I think we are being sugared up somewhat ,so we will remain calm ,& behave ourselves & not work , which we are doing ,all of us waiting for doom of some sort . There won’t be a credit score after this ? I mean who will give a ? We aren’t thinking about our credit scores right now! We are human beings. I found myself trapped by credit scoring , worried about that shit . Times like this , only food & a roof matter & not getting ill & dying or not killing anyone with irresponsible acts.
I have been advised by Nat west agent online to cancel my dd – but comments here say not to cancel dd????
Is there an expiry date/ cut of point to taking advantage of the payment break due to Coronavirus?
Hi, on the 27th of March I received confirmation of my requested payment holiday break, the next mortgage payment is due on the 2nd April, do I need to now cancel my direct debit or does the bank automatically do this, really would appreciate a response
Kind regards Matt
My mortgage company has agreed to to me taking a 3 month holiday however they insist I pay all 3 months on month 4. If I dont I will be considered in arrears which obviously affects my credit rating plus incur additional charges. I do not consider this a mortgage holiday and believe they should be allowing me to either tack it onto the end of my term or spread it over time meaning my monthly installments are increased to cover the 3 month holiday plus any interest. Does anyone have any advise on this?
Talk to them again as most lenders will either increase the monthly payments so it is manageable or increase the term of the mortgage.
UK Finance (the trade body for the financial services industry) says: “Your provider will contact you before the end of your payment holiday to offer you an arrangement to repay the interest charges incurred and make up the deferred payments. If you were up to date with your mortgage payments, the lender may offer you the option to add the outstanding balance to your mortgage. This could result in an increase in your future monthly payments. Each lender will have a range of options available to help you at the end of the holiday period which you can discuss with them.”
The website moneyed.co.uk has a calculator that works out how it will affect your repayments after the 3 month period.
https://moneyed.co.uk/calculators/mortgage_holiday
Give it all a good read and be aware of the pros and cons of taking the holiday.
We have an endowment mortgage that ends in December this year. We have never missed a premium/interest payment for 25 years. We are very worried that the slashed interest rates mean our endowment payout will not be sufficient to cover our mortgage debt, leaving us unable to settle our mortgage. What should we do?
Check with the provider what the projected payout will be
Dear Joanne, I did not get a confirmation on this being posted, so I apologise if this is duplicated to you…. I am in the same boat as Lynne but more worrying as my policy matures next month. I have paid via direct debit for the full term since 1995. I have received red warning letters to confirm that there would most likely be a shortfall as interest rates have been low for several years, however this latest global crisis has really worried me…. I have called my Provider ( the policy was originally with the Woolwich but got swallowed up by Reassure…and I have asked if I can please extend the policy as I would rather continue paying into it until we reach better times so the units will recover their value…but was bluntly told by the salesman that the maturity date is fixed and cannot be altered. I have seen that other mortgage endowments give the option to the investor to extend the period… given these exceptional circumstances, would I have an argument to suggest that they bend their rules to enable me to carry on the policy to a longer term? I don’t see how the chap could state such a rule when he doesent even have the original policy document to hand? Do I have a right to argue this point? No doubt there will be many people in the same boat as I, since back in 1995 , more than two thirds of mortgages were sold to home buyers as Endowment Mortgages. Boy how naive were we all then to believe these companies that this would be a safe investment!! I am mildly seething. I also asked the chap if the value would continue to drop between now and May 26th – he replied that he didnt think it would make any difference. Again I find this a very misleading answer… how would he know? What if the units do crash to nothing between now and May 26th – then we will have another “Equitable Life” scenario on our hands? I feel that I was being fobbed off. I look forward to hearing from you. Many thanks, regards, Nanette Hollis.
I think Godiva are Linked with the Coventry Building Society so you might need to go to their webpage to request the mortgage holiday
I should acknowledge Nationwide. I decided to take a holiday yesterday. Went onto their website and it was done in under five minutes. Very good customer service.
I have a BTL with Precise. Clicked around on their site googling ‘coronavirus mortgage holiday’ and quickly found a link. I sent an email explaining the situation and was told quickly they would reply in a week’s time. In fact, a letter came about four days later saying “OK … no problem … “. Pretty good, IMO.
Hi i have taken a 2 month mortgage holiday because i thought this would be enough however i now need another month,could i apply for the extra month due to coronovirus ?
At the moment you can apply for up to 3 months
I have heard (from a friend who works in a solicitors) that banks are refusing to grant mortgages on new properties if you have taken the 3 month holiday? Has anyone else heard of this? As i was just about to put my house on the market and didn’t just before lockdown and I’m worried i wont be accepted for a mortgage on my new property?