COVID Mortgage Payment Holidays Explained
A three-month mortgage payment holiday is available for those who have been affected by COVID-19. The deadline for applications will be until 31st of October. Since the start of the pandemic, more than two million homeowners have taken out mortgage payment holidays. New guidance rules from the Financial Conduct Authority reveal next steps after payment deferrals end.
The regulator has confirmed that banks are expected to offer a variety of short and long-term support options for borrowers.
Mortgage payment holidays are the temporary pause of monthly payments on mortgages. The government-mandated holiday allowed homeowners to apply for up to three months of no payments. Homeowners looking for short relief on payables can ask their lenders to extend them for three months more. Those who are yet to request for payment holiday must remember that the mandate ends on October 31.
Homeowners and buy-to-let landlords (with tenants financially affected by the virus) are legible for the payment holiday. Landlords are expected to extend the same relief to their tenants. The FCA has reminded mortgage lenders not to commence repossession proceedings until October 31. They may only do so in the instance that they can 'demonstrate clearly that the customer has agreed it is in their best interest'.
Be reminded that the payment holiday does not cancel out the capital amount. Interest will continue to accrue on this. Experts point out that the payment holiday scheme will take a homeowner a longer time to finish payments and will cost even more to clear the mortgage. Lenders are not to charge any extra fees to set up a holiday payment, the FCA confirms.
You are not required to provide any form of documentation or undergo any affordability tests. As a homeowner, you will have to self-certify that your income has been affected directly or indirectly by the pandemic. The same goes for landlords with struggling tenants.
It is recommended that if you are not struggling on regular repayments, you should proceed, as usual, not availing the holiday.
After the three-month holiday period, homeowners and lenders will have to assess the circumstances and find a manageable (homeowner friendly) move towards making up for the deferred payments.
The FCA's guidance points out that there is no one size fits all approach and firms should take note. Tailored plans and multiple options should be available for the borrowers so they can get back on track with their payments.
The following is a commentary by the head of mortgages at Trussle, Miles Robinson:
"It's clear that mortgage payment holidays have proved a vital lifeline for some homeowners who have suffered financially as a result of the coronavirus pandemic.
"However, the FCA has recently announced that the relief will not extend beyond 31st October 2020.
"It's important to know that unlike before if you need financial support from your lender after 31st October, it will be marked on your credit file. We'd urge homeowners to only utilise the mortgage payment holiday if it's essential.
"Anyone considering a mortgage payment holiday should also be aware that once the mortgage payment holiday is up, your monthly payments will increase slightly.
"This is because the additional interest is added to your total mortgage balance. Some lenders offer other potential options, which include switching some of the loans amounts to interest-only payments in the short term.
"For existing homeowners, now could also be a good time to think about remortgaging. Any aspiring or existing homeowners who are considering taking a mortgage payment holiday should seek professional advice as soon as possible to discuss their options."
Expert quote from Property Wire.
