Mortgage holders across the UK can request a mortgage payment holiday if they’re struggling to cover their costs. The same goes for landlords, but is it a wise choice?
As of the end of last week, an estimated 1.2 million people – or one in every nine mortgage-holders – had taken a mortgage payment holiday. Currently, people can apply for a three-month pause on their payments, thanks to a government-backed scheme. This is designed to help people who are unable to keep up with their outgoings as a result of coronavirus.
The concept of a temporary mortgage payment holiday is not a new one. Most lenders already offered this option for people whose circumstances had changed. This could include job loss, unexpected costs like house repairs, or maternity/paternity leave. At the discretion of the lender, a payment break could be arranged for a short period of time.
Missed payments are added to the mortgage balance. This means your monthly payment and amount of interest you pay will increase for the remaining term of your mortgage.
All mortgage holders can apply
Right now, mortgage payment holidays are an excellent option for some borrowers. The coronavirus lockdown has led to some people losing their jobs, for example. For those who are unable to make ends meet and keep up with monthly payments, a pause in mortgage outgoings is likely to help in the short term.
Buy-to-let landlords are not immune to the situation, either. Some tenants may be asking their landlords for a rent payment holiday due to the current climate. For others, a failed property sale that might have added to a landlord’s cashflow, for example, could leave them struggling to pay their mortgage.
Mortgage payment holidays for landlords work in the same way as for owner-occupiers. Landlords must apply to their lender, who will be able to accept or reject the application.
Should you apply if you’re a landlord?
Whether you should try and get a mortgage payment holiday obviously depends on your individual circumstances. For those who will genuinely be unable to cover their outgoings, or will have to choose between a mortgage payment and other essential items, it could be a good option.
However, some brokers are advising landlords against this if they can possibly help it. According to Mortgages for Business, a lot of landlords enquiring about mortgage breaks are not actually unable to cover their payments.
Steve Olejnik, managing director of Mortgages for Business, says: “We’re having a lot of discussions with landlords around payment holiday requests. Only a handful are raising legitimate concerns about how to pay their mortgage in the face of the Covid-19 pandemic.”
The downside of taking a payment break
When the government introduced the measure, it reassured people that their credit scores wouldn’t suffer. Though this is the case, it could still affect how lenders view borrowers.
Olejnik adds: “Landlords must be aware that any requests could potentially damage any approaches to that lender. Lenders expect landlords to be able to cover void periods under normal circumstances – where a property is empty, and a landlord isn’t getting any rent – so they won’t take kindly to landlords trying to take advantage of them just to build up some cash reserves.
“One borrower with three live cases with their lender approached them for repayment holidays on another, existing loan. The lender immediately cancelled all three. Smart landlords, who want to capitalise on short-term house price falls and expand their portfolios when the lockdown is lifted, should think long and hard before approaching their lender.”
Think carefully before applying
This argument is reiterated by Chris Sykes, who works at mortgage broker Private Finance. He asserts some lenders will be less keen to take on customers who have had mortgage payment holidays. It could be a way of alerting lenders that you are in financial difficulty, he argues.
He adds: “One lender has even told us, if a borrower has requested a payment holiday on an existing loan, any new cases will automatically be declined. Be warned they won’t be alone.”
In the rental sector, tenants have been urged to only ask for help from their landlords if they really need it. The message from the industry is that landlords should be “sympathetic” to their tenants’ needs. However, on the flip side, tenants must not use coronavirus as an excuse to not keep up with their rent payments.
The same goes for mortgage payment holidays. For the majority of landlords, tenants should continue to pay their rent. If you still have the financial means, therefore, to pay your mortgage, it is advisable to carry on as normal. This could come into play down the line, when it is time to refinance or grow your portfolio.