On 31 October 2020, the UK Government announced that mortgage payment holidays would be extended.
What does this mean?
- Borrowers who’ve already had or are on a three-month payment holiday will be able to apply for another three months, up to a maximum of six months.
- Borrowers who’ve already had six months of payment holidays and still need help will be offered ‘tailored support’.
- Your first six months of payment holidays WON’T be reported as missed payments on your credit file, but lenders can still find out about them.
- Your lender won’t be able to repossess your home for non-payment until 31 January 2021.
If you've already taken six months of payment holidays...
If you’ve already taken six months of payment holidays, you will be moved on to “tailored support measure”.
Below are some of the measured you could be offerd.
- A payment deferral
- A period of reduced payments
- An extension to your mortgage term
- A change to you mortgage type
Tailored support will go on your credit report
How to access the scheme?
Customers already on a payment holiday should be contacted by their lender before it ends to find out whether you can afford to resume payments. If you cannot they will look for temporary options and may offer an extension to the payment holiday.
For those who are not on a payment holiday, they must contact their lender, before 31 January 2021, to apply.
What will the lenders discuss with applicants?
Lenders will discuss any amounts covered by the payment holiday and the increases in the total amount due once the holiday period has ended.
They will discuss any increases in monthly repayments, as an effect of the accrued interest and deferred payments, and the alternative ways the interest can be repaid:
This means customers will see an increase in their monthly mortgage repayments once the mortgage payment holiday period is over. The shorter the term left on the mortgage, the larger the increase in monthly payments, once the mortgage payment holiday is over. Customers should consider the impact the higher mortgage repayments will have on their future monthly financial commitments.
Extending the length of a mortgage means customers may see a smaller increase in the monthly repayments. But they will be paying mortgages back over a longer period which means they will be paying more in interest over the term of a mortgage.
Just making interest only or capital only repayments during a mortgage holiday might be an option for some customers. This will reduce any increases in the monthly repayments compared to some other options once the mortgage holiday period is over, but customers will still need to pay back any shortfall in the normal monthly payments.
Pros
- It relieves some financial pressure
- One less outgoing to consider
- Can help when facing a temporary drop in income. i.e. maternity leave
Cons
-
Interest still accrues on the remaining balance
- At the end of the holiday, the mortgage balance and payments will be higher than before the holiday
- Though credit ratings should not be affected any arrears that are accrued may be reported to credit reference agencies