The Implications of the Mortgage Holidays

Mortgage holidays were first announced by the government in March 2020. The scheme has been extended and the deadline for applying is now 31 October 2020. Homeowners have been able to apply for mortgage payment holiday or reduced payments by extending the term of their loans. All in effort to relieve the financial consequences of the coronavirus pandemic.

If you would like to know how the scheme works and how to benefit from it, please read on. We’ll also present the implications of the scheme.

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Who Can Apply for Mortgage Holiday?

the Financial Conduct Authority says that any homeowner can apply for mortgage holiday. Even mortgagors who are behind with their repayments are to be treated equally to those who are up to date. In addition, in most cases borrowers do not need to show proof of financial hardship to be accepted.

How to Apply?

The majority of bank and building societies have now online forms on their websites. All you need to do is fill out the form. You may be asked to provide information on your situation, your loan details, and to confirm you are struggling with your repayments.

You can also call your provider, if you don’t have access to the internet, but be prepared for long waiting time. Many banks are struggling to keep on top of the incoming calls due to demand.

However, even if you find it difficult to get through to your provider do not just cancel your direct debit. If you do cancel your direct debit you are risking being highlighted as being in arrears by credit referencing agencies. If this happens to you, you may get a red light when you want to re-mortgage in the future.

Major banks and building societies report that it takes them between 3 to 7 working days to make a decision and notify the borrower.

What Are the Options?

First of all, you can apply for mortgage holiday of up to 6 months.

Currently, there are 3 options offered to homeowners:

  • Loan extension – you may be able to extend you loan by adding a number of months to the end of your term.
  • Mortgage size increase – you may increase the size of your mortgage but keep the term length. You would be paying over the same period of time, but your monthly payments would be higher when the payments commence again.
  • Shorter term repayment time – some lenders provide the borrowers a choice to pay the loan back sooner over a period of a number of months.

Ask your lender which option they are offering.

 Implications

Although the government has promised mortgage holidays will not affect credit scores, lenders may refuse to offer loans to those borrowers in the future. It has been reported that some lenders have already started to automatically decline applications of the borrowers who have taken a mortgage holiday. Essentially, by asking your lender for a mortgage holiday you are telling them that you are struggling financially. With that knowledge they may decline any future requests for loans.

What is important, taking a payment holiday will cost you more. And it does not matter which option you are going for. Only the shorter-term repayment time will protect you from paying more but not all lenders offer this option and not everyone can apply for it. Most big banks and building societies have a mortgage holiday calculator available on their websites. It is definitely recommended you use one of them before applying for a mortgage break. Also, consider your circumstances carefully and ask yourself whether you truly need a payment break.

For more information, visit the FCA website.

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