If you took a mortgage payment holiday earlier in the year, you may be concerned about your ability to repay the extra amount you owe or resume your monthly mortgage payments. Here’s what to do…

Mortgage payment holidays were introduced by the government and the Financial Conduct Authority back in March at the start of the pandemic. They were extended in early June and are due to end on 31 October. At least 1.9 million homeowners took advantage of the mortgage payment holiday scheme. But what happens when the holiday comes to an end?

Firstly, if you have managed to avoid taking a mortgage payment holiday so far but think you now need to take one, you only have until 31 October to apply, so don’t delay.

However, if you are currently on a mortgage payment holiday, you may be concerned about your ability to resume payments when the scheme ends. If this is the case, you’re not alone. Research carried out by Standard Life Foundation has revealed that six in ten people are having financial problems and are concerned about their ability to repay their debts when the holiday arrangements stop.

Loss of income

In a previous survey of 6000 households who were granted a mortgage payment holiday, 46 per cent said they were expecting to lose money in the next three months due to the pandemic, while nearly half said they had no savings at all to fall back on. The report also showed that 1.6 million households may need financial advice when their payment holidays are over.

Mubin Haq, CEO of the Standard Life Foundation, said that regulators and lenders need to consider how to manage the situation at the end of the month to avoid large numbers of families facing enforcement action and potentially losing their homes.

So what should you do if you are concerned about your ability to make your mortgage payments from next month?

It’s important to take control of the situation straight away. However daunting it may sound, speak to your lender immediately and explain that you may struggle to resume payments. They are required to make reasonable attempts to come to a suitable arrangement with you. Your lender might even contact you first towards the end of your payment holiday to ask how you are going to repay the shortfall.

Extending your payment holiday

If you explain you are concerned about your ability to meet the payments, they might offer to extend your payment holiday by another three months. However, if you can afford to start your mortgage payments, you should aim to do so. When you do, it’s likely that your lender will recalculate the monthly amount you normally pay and spread any deferred payments over the term of your mortgage. This means your monthly payments will go up but remember the amounts will be spread over the outstanding term and you won’t have to repay what you’ve missed in three months. However, the shorter the term you have left on your mortgage, the higher the monthly payments.

If you are struggling, you could ask your lender if you can increase the length of your mortgage term but be aware that this will mean you’ll pay more interest.

You could also ask if you could make interest only payments for a fixed term (which means you are just paying off the monthly interest and not the actual mortgage debt). It could save you a considerable sum each month, although your lender will need to be convinced that you have a long-term strategy to pay off your mortgage. Bear in mind this could have an impact on your credit score.

We are living in exceptional times, so don’t be afraid to talk to your lender and get them on your side as soon as possible. We’re here to help if you need advice.

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