Mortgage holidays now extended until July 2021
Coronavirus related mortgage holidays were due to end in October, then extended in light of lockdown 2.0, and are now being extended into July 2021. But are you eligible? When do you need to have applied? Are they a good idea? What is the impact on your credit file? And what are the other options?
The coronavirus pandemic has left many people faced with a significant loss of income. On Tuesday 17 March 2020, the government responded by announcing that all homeowners can claim a “holiday” from their monthly mortgage repayments. Moments before this scheme was due to end on 31st October 2020, it was extended in light of the latest national lockdown.
The Financial Conduct Authority has now confirmed new rules for mortgage holidays which need to be applied by all banks and lenders by Friday 20 November. The new rules are:
- those who have not yet had a mortgage payment holiday will be able to request one up until 31 March 2021. This brings it into line with the furlough scheme which also runs until end March.
- those who’ve already had or are on a payment holiday will be able to extend to a total of six months. In general payment holidays are agreed in three-month tranches, so it may be your lender will agree to an initial three month payment deferral holiday and then you will apply for another three months.
- those who have started their first mortgage payment holiday, ending after 31st March 2021, will be able to extend it. If you’re still on your first mortgage holiday when you reach the 31st March deadline, you’ll be able to extend it. However, all payment deferrals need to end by 31 July 2021. So if you need to benefit from the full six-months of payment holidays, you’d need to apply for your first payment holiday before your February mortgage payment is due.
- those who want o make partial payment holidays can pay something towards your mortgage. This is better option for homeowners that can afford it as it means the mortgage will cost less in total. The deadline to apply for a partial payment holiday is 31 March 2021
- those who have already had a six month payment holiday will not be eligible for a further mortgage payment holiday.
- those who have already had six months of payment holidays and are still struggling to make repayments will be offered ‘tailored support appropriate to their circumstances’. Speak to your lender if you think this might be the case.
The FCA also confirmed that nobody will have their home repossessed without their agreement until after 31 January 2021.
Will a mortgage holiday impact my credit rating?
Coronavirus-related payment holidays taken since March 2020 do not impact your credit report. The credit reference agencies Experian, Equifax and TransUnion confirmed that a homeowner’s credit score would be maintained at the current level for the duration of the payment holidays.
The FCA also confirmed in their latest announcement that the first six months of a mortgage payment holiday will not be reported as a missed payment on your credit file.
BUT this does not mean your ability to access credit will be unaffected in future, as lenders may take into account a range of information when making lending decisions.
Some lenders may infer you were struggling financially from the gaps in your payment history even though the holiday isn’t logged on your credit file.
If you can afford to resume mortgage payments, you should do so for your own long-term interests and so that help can be targeted at those most in need.
How does a mortgage holiday work?
A mortgage holiday is when your mortgage payments are paused for a period a time.
A mortgage holiday doesn’t mean your lender will cover the cost of your mortgage or simply wipe away months worth of mortgage payments. Instead, they will be allowing you to defer the payments to a later date in the future. This means you will see an increase in future payments.
The aim of the government’s coronavirus-related mortgage holiday scheme is to help people who are struggling to meet their mortgage payments as a result of the pandemic.
What happens when my mortgage holiday ends?
Lenders are expected to contact their customers whose coronavirus-related mortgage holiday is coming to an end.
Depending on your financial situation and your lender, you could:
- Resume full monthly re-payments
- Discuss with your lender paying a proportion of your monthly payment. This may be acceptable if you are likely to struggle for a short period of time.
- Temporarily switch to an interest-only mortgage
- Further extend your mortgage payment holiday – but check what the impact is on your credit file
Reports of mortgage prisoners being mis-led over mortgage holidays
As alluded to above, while your credit score has been protected during the course of the coronavirus related mortgage holidays, the FCA has also been quoted admitting that “credit files aren’t the only source of information which lenders can use to assess creditworthiness.”
This has understandably angered homeowners, especially those stuck on higher than average loan rates, who may now find themselves even further away from being able to remortgage to a better deal.
Have mortgage holidays been popular?
Yes. 1.9 million homeowners have taken a three-month mortgage holiday since the scheme was announced in March to help borrowers in financial difficulty because of the coronavirus crisis, according to Treasury figures. That’s almost one in six of all mortgages in the UK.
Will I pay more in interest if I take a mortgage holiday?
Yes. You’ll still owe the bank the same capital amount as you do now, and interest will continue to accrue on this. This means it will take you longer and cost you a little more to clear your mortgage.
Therefore it’s best to continue with your monthly repayments if you can.
Can I make partial payments while on a mortgage holiday?
Yes. Speak to your mortgage lender who should be able to accommodate partial payments towards your mortgage.
Can I get a mortgage holiday for my buy-to-let mortgage?
Yes. The government announced that Buy-to-Let mortgage holders were also able to apply for a coronavirus-related mortgage holiday.
What are the alternatives to a mortgage holiday?
- Remortgaging. Don’t forget that many people can save a lot of money off their monthly repayments by simply remortgaging. The UK base rate very recently reduced from 0.75% to 0.25% – the lowest rate for hundreds of years. That means if you’re on a tracker or variable rate mortgage you could see a reduction in your monthly payment as the rate cut feeds through. Fixed rates are already available at extremely low rates and could offer the chance to lock in whilst interest rates are so low.
- Switching to an interest-only mortgage. Many banks have said they would let customers switch to an interest-only mortgage to make monthly repayments more affordable. This could be a temporary switch.
- Extending your mortgage term which in turn will reduce your monthly payments.
- Making partial payments. Everyone’s circumstances will be different, so when homeowners can pay some or all of their mortgage, the government has advised they should work with their lender on a plan
What’s your experience of mortgage holidays? Let us know in the comments box below