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Mortgage payment holiday & what the banks are doing

COVID-19 is unprecedented and has far reaching implications on us all. One of the measures being put in place by the Government is the ability to apply to your mortgage lender for a “payment holiday” of up to three months.

This briefing note is a simple overview of the current situation of the payment holiday and overview of how the banks are reacting at present.

Broadstone are not mortgage specialists and content in this document should not be construed as mortgage advice. We strongly recommend that you seek appropriate advice in relation to matters through a mortgage specialist or your lender.

Payment Holiday

What is a mortgage payment holiday?

A mortgage payment holiday is when your monthly mortgage repayments are paused for a set period of time. Under the government’s policy, you can apply for a payment holiday of up to three months.

May Update

The government announced on 22 May that they have extended the mortgage payment holiday by a further three months.

The date for homeowners to apply to prolong their mortgage holiday has also been extended until the end of October. Likewise, new mortgage holiday applicants will have until the end of October to apply.

Am I eligible for a payment holiday?

Mortgage payment holidays of up to three months are available to all homeowners who are up to date on their mortgage payments and have been financially affected by the coronavirus.

Will I pay more in interest?

In short yes. You owe the same amount as you do now, but interest will continue to accrue. This means it will take you longer and cost you a little more to clear your mortgage. After your payment holiday you may be able to increase your mortgage payment to account for the time you have not been paying off the mortgage. You will need to speak to your lender about this directly.

Can I apply if I am not financially affected by COVID 19?

If you are not concerned about your ability to pay you should continue with repayments as normal. Most lenders will require you to demonstrate that the mortgage is not affordable due to your financial situation being affected by COVID 19.

How do I get a payment holiday?

You need to contact your bank directly to discuss your available options. Check your lenders website in the first instance due to the volume of calls. Do not cancel your direct debit before you speak to your lender to request a payment holiday. If you cancel the direct debit, this will be considered a missed payment rather than a payment holiday. The missed payment would then be registered on your credit file.

What are the banks doing?

You may have heard in the media recently that banks are slowing lending. Here are some of the reasons for their rationale:

  • Valuations – No valuations can take place in Scotland, Wales and North Wales as Government restrictions mean that Valuers cannot go out and survey properties. The position has changed in England however, Valuers are now able to travel and gain access to properties provided they follow Government guidance.
  • Payment Holidays – The lenders are currently inundated with requests from customers applying for payment holidays and because of this they have a drain on resources.
  • Assessing income – It is currently very difficult for a lot of mortgage applicants to confirm that the level of income they had at the beginning of the year will be maintained going forward. This makes the banks nervous that an applicant(s) may not be able to afford the new loan they are applying for. If a bank cannot be sure that the deal is affordable they can’t move forward with it.

The 3 points above have significantly reduced lending.

One area for new business is still potentially open, and that is to people who are applying for a low loan to value mortgage. The banks may consider this as a low risk area, particularly around affordability and that if a client does have some difficulty paying the mortgage there is plenty of equity in the property to use as collateral. Banks are able to run “desktop” valuations of properties in this category, thus eliminating the need for a valuation visit.

This is based on our understanding of the current position as this is a rapidly evolving situation and further development or change cannot be ruled out.

This is based on our understanding of the current position as this is a rapidly evolving situation and further development or change cannot be ruled out.

Broadstone are not mortgage specialists. We strongly recommend that you seek appropriate advice in relation to matters through a mortgage specialist or your lender.

Some useful links below:
https://www.citizensadvice.org.uk/debt-and-money/mortgage-problems/how-to-sort-out-your-mortgage-problems/cutting-down-your-mortgage-costs/
https://www.moneysavingexpert.com/news/2020/03/uk-coronavirus-help-and-your-rights/
https://www.which.co.uk/news/2020/04/coronavirus-how-to-apply-for-a-three-month-mortgage-payment-holiday/
https://www.moneyadviceservice.org.uk/en/articles/mortgage-payment-holidays