Could a 95% mortgage leave you in negative equity in 2023 (Source: The Mirror)
What is a mortgage payment holiday?
A mortgage holiday is an arranged break from paying your monthly mortgage payment. Whether that is capital and interest or purely interest only. Mortgage holidays are temporary and should only be taken in unavoidable and serious circumstances. There are all sorts of reasons why you might want or benefit from a mortgage holiday, but prior to the Government’s guaranteed initiative to help people impacted by the corona virus pandemic, most lenders had made their approval criteria tougher to pass. But for borrowers who had legitimate reason to suspend their payments, a mortgage break could be extremely useful in overcoming temporary financial challenges that may otherwise have seen homeowners’ default on their loans. That said, there are downsides to taking a mortgage holiday that everyone should consider carefully.
Mortgage holiday payment coronavirus
There’s no doubting the fact that the global Covid pandemic which began in 2020, has had a seismic effect on people’s finances and their ability to keep up with credit commitments. People’s incomes have been significantly impacted and even now, over two years later, people are still feeling the pressure of the pandemic. The challenges faced by the hospitality sector in particular have been well-documented in the media such as pub owners and staff and restaurateurs, but most businesses will have seen some sort of impact on trade and revenue – whether for good or for bad.
The uncertainty created by lockdown has also created a loss – or threatened loss – of income for individuals. As businesses decide how to navigate the future, and look at cost management strategies, that threat may yet grow. According to This Is Money, around 2.7 million people took a mortgage holiday prior to the original March deadline. Under this Government- announced initiative, all homeowners were guaranteed a break from making mortgage payments if they chose to apply for one. Beyond the end of this month, mortgage lenders may still approve individual applications for a mortgage holiday, at their own discretion.
How to get a mortgage payment holiday
If you feel like you might need a new mortgage payment holiday, the best thing to do and definitively the first thing to do is speak to a mortgage advisor. If you are concerned about being able to keep up with mortgage payments, you need to speak to an advisor to make sure there are no other options as a mortgage holiday should be a last resort and not taken lightly. Fortunately, most worries about mortgage payments are easily resolved with things like remortgages.
A remortgage is a simple refinance of a property which can often consolidate debt and or get better and more affordable interest rates and deals. By speaking to an advisor, they can explore all the options for you and if a mortgage holiday is the only way forward, they can help you to speak and negotiate with your lender for a short-term payment holiday.
Is it difficult to get a payment holiday?
During the covid-19 pandemic, the government announced a policy where lenders were obliged to offer borrowers a mortgage payment holiday, if they needed it. That meant that thousands of borrowers were able to delay their mortgage payments for several months if they were struggling with keeping up with payments due to a loss of earnings or earning potential. These short-term holidays could turn in to extended mortgage payment holidays if things were serious but were always intended to be temporary.
Now, mortgage payment holidays are more difficult to secure as the covid-19 threat in the UK has reduced. If you still want to know how to apply for a mortgage payment holiday, your circumstances will need to be serious and your application for a holiday will be closely and carefully assessed by the lender before any holiday is accepted. This is for lenders that offer payment holidays. A lot of mortgage lenders do not offer payment holidays at all, so you will need to speak to your advisor if this is something you are thinking of doing.
Can I get a payment holiday mortgage as a landlord?
The quick answer is that it is unlikely. As a landlord, you should be receiving an income per month from your tenants as they pay their rent. If your rent is not enough to cover the cost of the mortgage or you do not have a tenant for your property, that is your responsibility. Mortgage payment holidays are normally reserved for struggling residential property owners who could lose their home if they are unable to keep up with payments. If you are a landlord and struggling with your mortgage, the best thing to do is speak to a specialist buy-to-let advisor like us at Oportfolio.
Does mortgage payment holiday affect credit rating?
Having a mortgage payment holiday, either now or in the past during the pandemic, does not necessarily affect your credit rating. As you are having a break from payments, you are not missing payments on your mortgage which would affect your rating. If you miss mortgage payments and you are not on a holiday, this is called mortgage arrears and will look bad on your credit score. Even if you catch up with your payments, these missed payments will stay on your credit file for several years and will affect your ability to borrow future mortgages with other lenders. Having a mortgage payment holiday could however have other not so positive affect on your finances. Here is a short list of some things you should consider before deciding on a payment holiday.
Your debt will grow
Taking a mortgage payment holiday or having mortgage payment holidays extended does not mean your mortgage is frozen in time. Unless your lender tells you otherwise, the interest on your capital loan will continue to accrue. This will mean either that you will end up paying down the loan for longer, or you will have to pay more each month to make up for the missed payments and additional interest. To avoid this, it may be a better option to re-structure your loan through a remortgage rather than take a payment holiday. Your advisor will be able to advise you of the best thing to do.
It may affect your ability to get credit
As we have already mentioned, under the coronavirus relief scheme from the government, and in the case of holidays formally agreed with your lender, your credit score was not impacted, and the period of the payment holiday was not counted as missed payments.
However, any potential future lender will be able to see that you took a holiday and, depending on the lending policy, may either decline your application or may ask some searching questions about why you took the holiday and how your financial circumstances have changed since. That’s understandable, of course – any potential lender will want to make sure you’re in a position to repay your debt and your circumstances have improved since you felt the need to take a payment holiday.
Will there be another mortgage payment holiday?
A lot of people in recent months have started to ask the question “will there be another mortgage payment holiday”. By which they mean, could there be another enforced mortgage payment holiday option for people struggling to keep up with their payments. This is because if the recent financial hardships a lot of people are facing due to the cost-of-living crisis in the UK. Mortgage interest rates have increased significantly in recent months due to many factors (the ripples of covid still, the war in the Ukraine, looming inflation). The cost of food, clothes, energy and a lot of other things have also gone up and a lot of people are finding that funding their normal lifestyles has become more difficult.
When it comes to another mortgage payment holiday or mortgage holiday payments extended, it looks like this won’t be on the cards. At least not in the form that it was during the pandemic. As we have already mentioned, some lenders may offer their own mortgage holidays, but they will not be guaranteed. Thats why we will always recommend getting financial advice if you feel like you are struggling. A remortgage or a product transfer may be the best option.
Get advice
It’s important to be realistic about your financial situation and this is where a financial adviser can offer you unbiased factual information and support. In the end, if a mortgage holiday is only delaying a long-term and inevitable problem, there may be a better way of approaching things like remortgages or other changes to your outgoings.
Depending on your circumstances, there may be benefit claims you can make from the Government, including the Government’s Support for Mortgage Interest scheme. Benefit support may not cover your entire monthly payment, but it might help your family when needed. As a pause on your payments can have consequences, it’s best to consider all the potential avenues that may be available to you. Is freelance or temporary work an option? Do you have any family you can go to?
How can a mortgage advisor help?
Asking for financial help from those close to you can be uncomfortable, but these bumps in the road can often be unforeseen and a helping hand can enable you to avoid some of the negative impact that may come from suspending your mortgage payments. If you can avoid taking a mortgage holiday, that’s always the best option. But if there really is no other obvious way of solving a short-term problem, take some advice from a professional adviser to ensure you minimise the potential downsides.
If you are struggling to keep up with your finances, the first thing to do is to look at your major credit commitments. That is the first thing that an advisor will do for you to get an idea of what your money is being used for and this will then enable them to see what needs to be re-structured. If you have a lot of loans, credit cards, finances that are eating up most of your income per month, your advisor can look at options of remortgaging and consolidating debt to free up some income. They can also look at options if your current mortgage monthly payments are too high for you by remortgaging on to a better product or lender. There are so many options that are available to you aside from taking a mortgage holiday.
At Oportfolio, we’re always here to help. If you are struggling with mortgage payments or think you might do in the future and you’d like to explore your mortgage options, get in touch with a member of our friendly team for a consultation. We are experts in remortgages, product transfers, large and small loans and buy-to-let investments.
