24 Mar Coronavirus and Mortgage Holidays
For many of us, our biggest financial outgoing will be our monthly mortgage payments. If you’re struggling financially due to the coronavirus crisis you’ll be pleased to hear the promises made by the chancellor recently. You may be able to implement payment holidays for your mortgage. This could be up to three months if you’ll struggle to keep up with payments.
What is a mortgage payment holiday?
A mortgage payment holiday is an agreement you might be able to make with your lender. This would allow you temporarily to stop or reduce your monthly mortgage repayments. Not everyone will be able to, but it’s always worth checking with your lender and talk through your options if you are struggling.
For example, depending on your circumstances and previous payment history, you might be able to take a break for usually up to six months:
Not all mortgages offer the option of a mortgage payment holiday – it depends on the product’s terms and conditions.
Am I eligible?
To find out if you are eligible to take a payment holiday, for how long, and the conditions you must meet first will depend on:
- Your lender
- The mortgage contract, and
- Your financial circumstances
Often, in order to qualify for a payment holiday, you’ll need to have previously overpaid on your mortgage. That means paying more than your agreed monthly payments. If you have built up sufficient credit you may be able to take a holiday from payments.
However, your lender might also allow you to reduce or suspend mortgage payments. If you’re temporarily struggling to meet the monthly cost due to a change of circumstance, such as redundancy due to coronavirus or going on maternity leave, your lender may agree. Redundancy especially might be affecting many with the current coronavirus crisis.
If you’ve been struggling to keep up with your mortgage payments for some time, and are in arrears, you won’t be eligible for a mortgage payment holiday. Don’t let that stop you contacting your lender though. They will be keen to help you come to an arrangement.
Pros of a mortgage holiday
The biggest positive about a payment holiday is that it relieves some pressure for a while. For a period of time, you have one less thing to worry about when considering your outgoings.
If you are only facing a temporary drop in income, perhaps because you or your partner are having a baby and the mortgage holiday is to cover the maternity leave period, this can be a sensible move.
Cons of a mortgage holiday
While a mortgage holiday can be a useful short-term solution, it is not suitable if you can’t afford your mortgage payments because your household income has reduced permanently.
There are several important things to remember:
- While you are not making mortgage payments, interest will still be racking up on your remaining mortgage balance.
- When the payment holiday ends, your outstanding mortgage balance and mortgage payments will be higher than they were before the holiday.
- Even if your lender agrees to this temporary solution, your credit file will be affected. This in turn could affect your ability to get credit in the future.
Coronavirus has changed my income. I’m struggling, what should I do?
The Money Advice Service have a great tool to help you work out how much you have coming in and going out which can be found here. It’s good tool to use and see if there’s a way you can cut non-essential spending.
If you think you want to take a payment holiday because you’re struggling to meet your mortgage payments or in danger of falling into arrears, talk to your lender as soon as possible about an alternative solution. Lenders would much rather come to an agreement that’ll allow you to continue paying, even if it’s at a reduced rate.
If you’re not in arrears but are finding it hard to meet your repayments it could be worth your while shopping around for a cheaper mortgage deal. Our team of financial advisors are always at hand to help you shop around, get in touch to discuss your options.
How to apply
Contact your lender. Have a look at your mortgage terms and conditions to see if you’re eligible. A mortgage holiday may be allowed under your mortgage agreement.
The criteria will vary from lender to lender:
- The length of your payment holiday depends on the lender. Some will allow you take up to 12 consecutive months off from paying the mortgage. Others will permit only up to six months over the life time of the mortgage. Some only 3 months in total.
- Typically, you will often have needed to have made payments on time for a minimum period before you’re eligible to take a mortgage holiday.
- Your ability to take a mortgage holiday also depends on the size of your mortgage and the value of your home. Some lenders will only allow a mortgage holiday if the loan-to-value of your mortgage is lower than 80%.
It’s important to know that a mortgage holiday might be great for some, but not for others. It’s also worth noting that this isn’t free money. Your payments will be stopped or reduced for three months. However, you will need to continue to keep up your payments after your holiday ends. Interest will also be added during your holiday too.
If you need free and impartial advice, our team of advisors can help. We have access to the whole of the market, meaning we see deals from around 450 lenders. If you’re considering a mortgage holiday, speak with our team. We are able to help advise and may even be able to save you money if you’re considering remortgaging. Contact us now to discuss your options.