We have some reassuring news for anyone struggling to pay their mortgage now or worried about their ability to pay in the near future. The mortgage payment holiday scheme has been extended until the end of October.
The scheme to help those struggling to pay their mortgage due to the impact of COVID-19, launched by Chancellor Rishi Sunak in March, has been extended to 31 October. This means that borrowers may be eligible for a mortgage break of up to six months.
More than 1.8 million people took a mortgage payment holiday after the scheme was introduced. On 22 May, The Financial Conduct Authority issued a proposal offering support for customers still struggling to pay their mortgage. It included guidance for lenders and the options available to their customers. Lenders will be expected to contact customers whose payment holidays are due to end.
So what does this mean for you?
A new deadline
In a nutshell, if you have been paying your mortgage during lockdown but feel that it may be a challenge to continue to do so, you have until 31 October 2020 to apply for a mortgage break. The previous deadline for applying was 20 June.
If you have already been taking a mortgage payment holiday that is due to come to an end shortly, you can ask to extend your mortgage break for another three months.
You won’t need to prove financial hardship but may need to provide some information on your current circumstances, such as losing your job due to the impact of COVID-19. You will be asked when you wish to take your break and how long you would like it to last.
It’s important to stress that you need to speak to your bank, lender or mortgage broker directly to organise your mortgage break. Don’t simply cancel your direct debit. If you cancel your payments without agreeing the break with your lender then you may be classed as being in arrears, which could affect your chances of remortgaging in the future.
Peace of mind
While having the flexibility and peace of mind to take a mortgage break can be useful if you need it, you should only take a break if you really need to. This is because it will cost you slightly more in interest if you take a break.
Lenders are offering several ways to defer mortgage payments. Some will offer you the chance to extend your loan, adding the term of the break onto your loan.
Paying slightly more
Others may increase the size of your mortgage but keep the term the same length. This means you will be paying slightly more when you resume payments again.
Another option is to take a partial payment holiday, i.e. to speak to your lender about reducing your monthly payments.
Taking a mortgage payment holiday won’t go down as a missed payment, nor affect your credit rating, so long as it’s been agreed in advance with your lender. The Financial Conduct Authority says lenders should work with customers on the best options to suit them. However, lenders will be aware in future that you have taken a mortgage payment holiday.
In essence, if you can continue to pay your mortgage each month, we recommend that you continue to do so.
Feel free to call MB Associates and speak to a member of our friendly team if you would like more information on taking or extending a mortgage payment holiday.