The Coronavirus crisis has had a massive impact on lending in general because a lot of lenders have actually taken frontline staff away from doing processing work and prioritise them to answering phones. Certain lenders have actually stopped lending due to valuation issues but also due to staffing levels, so we’re not a hundred per cent sure exactly how things are happening at the moment.
The payment holiday is nothing new. Some lenders offer that as a feature to some of their standard mortgages. Once you’ve made X amount of mortgage payments, you can take a payment holiday of a month or two months off, this isn’t the case with all lenders, but is with some.
The way these have been marketed it almost seems to be saying to people, it’s free money.
“You don’t pay a mortgage for three months” and that’s very much not the case of where we are.
All a payment holiday is designed to do is to give you a little bit of breathing space when you need it.
So in this situation, it’s while coronavirus may be affecting your income and perhaps you’re not able to work. It’s not free money though, and that payment does need to be paid eventually.
It can be paid back in a variety of ways. It could be annualised, where the lender might say;
“Your mortgage payment is £1000 a month, you can have three months off. So what we’ll do is we’ll increase your payment over the next 12 months to catch up on that £3k.”
They might add it on the mortgage balance. So at the end of the mortgage, if it’s an interest-only mortgage you’ll owe £3k more, or they may put it on the mortgage balance and recalculate the payment over the remaining mortgage term.
But it’s just one option and there are a number of other options that we can look at to help relieve any financial strain.
Once you’ve exercised this three month payment holiday, you’ve essentially ‘played your hand’, so if you don’t need to do it, don’t do it at the moment. If you do need to do it then it’s the right thing to do, it’s not, however, if you find in six weeks time that you then need a payment holiday.
That might be the time that you use it rather than using it now, it’s unlikely you’ll have an unlimited amount of payment holidays, three months is probably the maximum you’ll get. So it’s important that you use them wisely.
It’s also important not to consider it to be free money, it will need to be repaid at some stage.
At the moment, the government announced that you’ve got up to the 25th of June 2020 to apply for a payment holiday. And obviously the three months will start from the application so you’ve got time on your side if you need it.
The other thing you want to look at as well is whether your mortgage is due to expire.
Most lenders have some sort of incentive period which means most borrowers have some sort of incentive period. So typically a two-year fixed-rate mortgage, you want to try and ensure that you’re you don’t trip on to the standard variable rate (SVR) while taking a payment holiday.
Not all lenders have announced the way they’re going to treat payment holidays. Everything is done on a case by case basis. But if you are not making a mortgage payment, there’s a fear that you may not then be able to go on the new fixed-term rate the lender will generally offer you so it may end up costing more interest.
If if you do opt for a payment holiday, timing is really important. If you’re unsure about anything, pick up the phone and put a phone into your broker. The lenders are taking hours to answer phones at the moment a broker can give you their opinion in moments.
If you’ve got any questions or queries, I think that’d be the first port of call you should go to.