29th April, 2020
Under guidelines introduced by the Government on March 17 as a result of the Coronavirus pandemic, home owners with a mortgage are entitled to apply for a deferral of mortgage payments of up to three months. This is known as a mortgage payment holiday. These measures were initially introduced for home owner/occupiers only, but subsequently revised to include landlords. You do not need to have contracted the virus to apply for a payment holiday.
More than 1.2 million mortgage payment holidays were agreed during the first three weeks following the schemes introduction. That number has grown to over 1.6 million, with 1 in every 7 mortgages now subject to a payment holiday. The average homeowner who has applied for a holiday is saving £755 per month according to data supplied by the UK Finance group.
It should be remembered that this is not ‘free money’. In fact, you will end up paying more in the long term as, for the period you are not making mortgage payments, you will continue to incur interest on your outstanding mortgage balance. This means that at the end of the payment holiday, you will need to either pay back more each month or take you longer to pay off your outstanding mortgage.
What the payment holiday will do however, is provide some breathing space if you have a short-term problem with making your mortgage payments due to circumstances such as being furloughed or having reduced work hours etc.
Most lenders offer the ability to apply for a payment holiday through their website. Homeowners will need to self-certify that their income has been directly or indirectly affected by the coronavirus and, as there is no affordability test, lenders are generally able to fast track the process. Under guidelines issued by the Financial Conduct Authority, lenders should not charge any fee for agreeing to and setting up a mortgage payment holiday.
On March 18 2020, the Government confirmed that landlords may also apply for a three-month payment holiday on buy to let mortgages. This is only available where the landlord’s tenant is experiencing financial difficulty due to the Coronavirus and unable to pay the rent and as a result, the Landlord has offered a similar rent holiday to the tenant.
While a payment holiday can provide temporary relief if you are experiencing short term financial difficulty, it is not suitable where mortgage payments cannot be met due to a more permanent change in circumstances, such as a loss of employment. In such instances you should contact your lender to agree an appropriate alternative plan.
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