Last week, the government announced it was extending mortgage payment holidays for a further three months. This gives homeowners until 31st October to apply for a payment break.
As part of the Treasury’s response to the COVID-19 outbreak in the UK, mortgage-holders have been able to apply for a mortgage payment holiday since March. The package has proven popular, with around 1.8 million people taking advantage of the option.
The scheme was set to end after the initial three-month period, but it will now continue for a further three months. This means that homeowners can apply to their lender for a payment break right up until the end of October. Those applying at the latest point would be able to take a payment holiday until the end of January.
However, lenders are encouraging all borrowers to only apply for a mortgage payment holiday if they need to. All deferred payments must be repaid, as they are added onto your mortgage balance. This means that the total amount you owe on your mortgage will increase if you take a payment break.
John Glen, economic secretary to the Treasury, said: “Everyone’s circumstances will be different, so when homeowners can pay some or all of their mortgage, they should work with their lender on a plan; but if they are still struggling, I want them to know that help is there.”
What about buy-to-let mortgages?
While the information on moneyadviceservice.org.uk does not cover buy-to-let mortgages, the option is available to landlords.
Those in the private rented sector have been equally exposed to the financial impact of the COVID-19 outbreak as homeowners. In some cases, according to Joanna Elson of the Money Advice Trust, the situation is even worse for tenants.
Joanna Elson, chief executive of the Money Advice Trust, said: “People in private rented accommodation are among the most exposed to financial difficulty in the wake of the outbreak, and the government should listen to calls to help people meet their rent payments by increasing the Local Housing Allowance rate to cover 50% of average market rents.”
The criteria for landlords
Like homeowners, landlords must contact their lender if they wish to arrange a payment break. Alongside the government-backed mortgage payment holiday scheme, lenders can offer a range of options depending on the individual’s situation.
Prior to the current scheme, anyone could apply to their lender for a payment break, but they normally had to provide supporting evidence. For most borrowers now, it is just a case of self-certifying that their income has been affected by coronavirus.
However, according to Which?, landlords must self-certify that their tenant’s income has been affected by the pandemic. Some buy-to-let landlords may also be in a situation where a house sale has fallen through as a result of the outbreak, and this has led to cashflow issues. Similarly, they should be able to inform their lender of this and still qualify for a payment break.
A word of warning to borrowers
A mortgage payment holiday may be the best solution for some borrowers. However, there are other options available which may be more suitable.
While major credit reference agencies have made assurances that no one’s credit score will suffer, there are downsides to pausing your mortgage payments. The main one is that you will owe more money in the long run. Missed payments are added onto your total mortgage, so it will take longer and cost more to clear this.
There is also a risk that it could affect future credit applications. It is possible that lenders could look at mortgage payment history when assessing any further borrowing requests in the future.
According to Steve Olejnik, managing director of Mortgages for Business, landlords in particular need to be aware of this. He believes landlords should only apply when it is unavoidable.
“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.”
