The coronavirus pandemic has impacted the finances of millions of households across the UK. With many sectors hit hard, the furlough scheme has supported jobs while the government made a range of grants and loans available to aid businesses through lockdown.
On an individual level, almost one in six mortgage holders in the UK took a mortgage payment holiday under a scheme devised by lenders and the Treasury.
1.9 million people took advantage of a break in their payments during the recent economic uncertainty, and the scheme gave a financial lifeline to many families struggling to make ends meet due to furlough or redundancy.
Now, the Financial Conduct Authority (FCA) has announced that the blanket mortgage payment holiday scheme will end on 31st October. So, what does this mean for your mortgage? And will taking a mortgage payment holiday affect your chances of getting a mortgage in the future?
You won’t be able to insist on a mortgage payment holiday after 31st October
Since March, all borrowers in the UK have been able to demand a three-month mortgage payment holiday from their lender. In May, the government extended the scheme, and many borrowers decided to take advantage of this with a further three-month holiday.
Now, the FCA has changed the rules and mortgage holders affected by coronavirus won’t be able to demand a break from mortgage payments beyond 31st October.
Publishing new additional draft guidance for lenders at the end of August, the FCA said firms should prioritise providing borrowers with “tailored support”, especially those who are “at most risk of harm or who face the greatest financial difficulties”.
The FCA said: “Consumers in these situations will benefit from firms providing them with tailored support that is normally expected, which also needs to reflect the uncertainties and challenges that many customers will face in the coming months.”
This means you will no longer be able to insist upon a mortgage payment holiday after 31st October, and you won’t be able to automatically extend your payment holiday if you have taken one already.
If you are struggling to maintain your mortgage payments beyond this date, you should still contact your mortgage lender to discuss your concerns.
Remember that your mortgage is a priority debt, meaning that the consequences of not paying it are more serious than other debts. If a fall in your income means you are unlikely to be able to meet payments, it’s important that you talk to your lender as soon as you possibly can.
The FCA has recommended that lenders consider drawing up a range of short and long-term support options based on customers’ specific circumstances. These could include:
- Extending the repayment term – this may reduce your monthly repayments, but you could pay more overall as you’re repaying your mortgage over a longer period
- Restructuring the mortgage – making interest only repayments may help to reduce your monthly repayments, but you will still have to pay the mortgage back in the future.
Your mortgage payments will rise if you took a payment holiday
If your mortgage payment holiday is coming to an end, it’s worth remembering that you only deferred your payments, and that you can expect your monthly repayment to rise as a result of taking the holiday.
Here’s an example using Money Supermarket’s online mortgage payment holiday calculator.
If you have a £150,000 repayment mortgage with 20 years left to run, at an interest rate of 2.49%, your repayments would have been around £795 before lockdown.
If you took a three-month mortgage payment holiday, your repayments will be around £808 when they restart. That means you’ll pay £13 a month more going forwards.
Before the end of your payment holiday, your lender should contact you to let you know what your repayments will be once you start making them again.
Taking a payment holiday could affect your chances of getting a mortgage in future
Back in March, the government told borrowers that their credit files would not be affected if they paused their mortgages to ease the pressure on their household finances.
The credit reference agencies, Experian, Equifax, and TransUnion agreed to an ‘emergency payment freeze’, ensuring that an individual’s credit score was not affected throughout the agreed payment holiday.
However, experts now say that ministers failed to warn people that obtaining credit or switching mortgage providers could be more difficult, because lenders take other factors beyond the credit file into account when approving a loan.
While lenders rely on credit reference agencies to compile a credit score, they also consider a host of other indicators when underwriting a mortgage application. These include whether payments have been made (or not) on a mortgage, loan, or card.
So, if you have taken a mortgage repayment holiday, it could mean you struggle to get credit or a mortgage in the future as it is a sign that you are or have been under financial strain.
A lender will be able to see whether you have taken a payment holiday and for how long. This may then influence their decision as they may determine that you had made no provision for a change in circumstances, such as redundancy or a drop in income.
It may also lead them to look more closely at the industry in which you work and decide that it may be too great a risk if you work in, for example, the aviation or hospitality sectors.
Get in touch
If you have taken a mortgage payment holiday but you’re now thinking of moving home or switching your mortgage, get in touch.
Don’t assume that, if your mortgage deal is coming to an end, you will only be able to take one of the products your existing lender has offered you. There may well be better deals out there, and we can help you find them.
Email [email protected] or call 0131 339 2281 to find out how we can help.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.