Over the last few weeks in Sheffield. We have seen lots of borrowers enquiring about Mortgage Payment Holidays and asking how they work. The suggestion is that 1/9 mortgage holders have taken a mortgage payment holiday out since the outbreak of COVID-19. They are becoming quite popular.
As a Mortgage Broker in Sheffield. We have seen a lots of borrowers wanting advice on what we would do and what we would recommend them to do in their situation. Here are some questions about mortgage payment holidays and their answers from Malcolm’s BBC Radio interview with David Burns on the 15th Apil 2020.
“It has been suggested that over a million people that have taken out a Mortgage Payment Holiday. We have had a number of enquires about them over the last few weeks. Banks have had to redeploy a number of their staff that would usually be processing applications to take the sheer amount of incoming calls about payment holidays. It seems that everyone is looking to take one out. Or they are diving in headfirst without thinking about it, which is the wrong thing to do.
In terms of your mortgage payment holiday application, there are a few things that you will have to look out for. Firstly, the mortgage payments that you are taking a break from will not get written off. You will have to make up these payments eventually. You cannot just go cancel your direct debit, the payment holiday has to be an arrangement between you and your lender/bank/building society. In any case, if you were to just cancel your direct debit, then they would be carrying the risk of their lender marking arrears against their account. This could potentially put you at risk of not being able to get credit in the future.
During the BBC Radio show, Malcolm wanted to answer some questions provided by the public. We got a lot of responses and some really good questions:
“I don’t think it would be worth taking a mortgage holiday because it will still have to paid back at a later date. In any case, there will be default interest to pay on top of the basic mortgage they’ve missed”
“My advice to anyone who is asking this question is that if you are continuing to work in your job and your finances are unaffected, you are completely right, there is no need to take a mortgage payment holiday. The scheme was designed to help people whose income has been affected, for example, they might have been laid off through work, or furloughed. So, there are lots of people out there that do need this, and she is absolutely right the payments will need to be made up at a later date, often by an increase in your monthly payments.
In terms of making up the months that you missed, you might be faced with an increase in your monthly mortgage payments. What most people don’t realise is that it could only be by £10 or £20 a month, depending on the size of your mortgage term. So in the end, it may not be that bad of an idea if you are really struggling to afford your payments at the moment.”
“No, you do not, the FCA has issued some guidelines to lenders and that is one of the things stated. You do not have to prove that you are suffering from financial hardship at all. You can just make the request and they should handle it sympathetically and then grant the request. They also have other guidelines in place that they need to follow. Such as the payment holiday should not be recorded on the customer’s credit file to impact them getting credit at a later date.
Even if the customer does not specifically ask for a payment holiday. They may call in about their payments, their lender should automatically offer the mortgage holiday option. So, it is not just the borrowers who should ask for one, your lender should offer you one too.”
Lots of customers have been asking whether they can scale their mortgage payments. For example, you have been furloughed so you are now on 80% of your wage. So are you then also eligible to pay 80% of your mortgage payments?
“I think that if you were being furloughed and you think that your income is going to be adversely affected. It may be a good idea to take the mortgage payment holiday out for three months now. If you leave it too late, it could cause yourself potential hardship down the line. In any case, the scheme could get pulled in a couple of months when you most need it. If you are questioning your ability to meet your mortgage payments. It could be within your best interests to take one now. Most customers are actioning on it straight away and starting the 3-month break from now.
The situation is changing all of the time. In any case, we are also experiencing what lenders are doing on new mortgages as well. The offer is there at the moment for the 3 month payment holiday. If you don’t need it, don’t take it, if you do, accept it straight away.”