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Mortgage Holidays – What you need to know

Mortgage Holidays - What you need to know Rose Capital Partners

Here we look at Mortgage Holidays – what you need to know. As you can imagine, since the Government and Bank of England announced a series of measures to support the economy during this difficult period dealing with COVID-19, the one that has kept us very busy has been – how does a mortgage payment holiday work? 

Mortgage holidays – what you need to know

We have spoken to all our key lending partners and the key things to consider are set out below. The things we would really like to stress are:

  1. Talk to us BEFORE you speak to the lender
  2. DO NOT stop making your monthly payments until agreed otherwise with your lender
  3. Consider – is this really in your interest, or the lenders?
  4. If you are going to take a holiday, what is the best option for you?

Lets break down those options in more detail below:

Talk to us BEFORE you talk to the lender

Aside from us having your interests at heart, there is a pratical implication to this. With the schools closing next week, lenders are doing to really struggle with business as usual, let alone the influx of calls this will generate. We are here for you and can guide you through your optoins as laid out below. It is worth noting that we can’t actually agree this for you or action it, but what we can do is prep you for that call so you get the right outcome as quickly as possible

DO NOT stop making your monthly payments until agreed otherwise with your lender

While every lender we have spoken to will grant this option, you do have to agree this with them prior to simply stopping your payments. If you do not make your payment on time, or unless otherwise agreed, this will have a hugely negative impact on your credit rating and could prohibit you getting a competitive rate next time out. 

Consider – is this really in your interest, or the lenders?

A payment holiday sounds like a nice idea, but is it in your interests? All lenders we have spoken to will still be charging interest during this period. So while you will have a ‘holiday’ of making the payments, interest will still be charged on the balance which can increase your interest paid over the life of the loan by thousands of pounds. So if your income is likely to be affected, then take the option. However, if you can carry on, we would urge you to so. As why pay more interest unless you really have too?

If you are going to take a holiday, what is the best option for you?

From speaking to lenders, they are all taking differing stances. Most of which seem quite flexible. Below are the most likely things that will be offered and we can discuss with you what may be best course of action:

  • Extended Term
    • This will be where a lender simply extends your mortgage term by 3 months. So if you had 21 years and 2 months to run on your mortgage, you could agree not to pay your mortgage through April-June and they extend the term to 21 years and 5 months to balance this off. Remember – Interest will still be charged through the ‘holiday’ period so your mortgage balance will increase
    • Also consider – does this take you beyond your planned retirement? What impact (f any) will that have?
  • Add the payments to the balance
    • This will be where the 3 month holiday will be taken, but the payments added to the loan. So in a simple example:
      • your mortgage balance is £100,000 and your payments are £1,000 a month. You agree to miss payments from April-June. So from July, your mortgage balance will be £103,000 and your monthly payments adjusted (upwards) to account for the increase. Again, Interest will still be charged in the balance during the holiday period so your mortgage balance will increase further
    • Also consider – when you come to refinance, will the increased balance and potential dip in house value mean you have a more expensive mortgage next time out?
  • Converting to Interest Only
    • Not a payment holiday as such, but lenders will also let you simply pay just the interest and not the capital for 3 months. This will dramatically reduce the monthly payments for many people, and also means your balance does not increase, so is the cheapest of these options. However, it will not be of benefit to anyone already on an Interest Only loan.

What is best for you will be down to your personal situation. Exactly why we are recommending you speak to us before approaching your lender. You will find all lenders very willing to grant this, as yes it does help you, but also they make more money. 

Below are the technical points raised by Chris Woolard of the FCA. So if you do want to go down this path, please read the below, call us for clarity and we will do all to help in this time of need:

Proposal:

·   Mortgage lenders will offer an automatic 3-month payment holiday for customers impacted, directly or indirectly, by COVID-19
·   The payment holiday will apply to customers who are up to date on their payments, not in arrears, and wanting to self-certify that they are impacted by COVID-19
·   This means that lenders will not complete an income and expenditure assessment, or an assessment of alternate payment options as ordinarily required under MCOB
·   This proposal will allow lenders to be more responsive to customer needs and offer forbearance in a simple way to customers in an environment where the operation of collections teams made be also impacted by COVID-19
·   Customers will be made aware that interest will accrue in the holiday period and they will need to make up deferred payments in the future
·   Customers who wish to undertake a full assessment of their ability to pay or financial difficulty may still do so.

Technical details:

For a customer, up to date with payments, not in arrears and impacted by COVID-19:
·   the customer would contact the lender and inform them that they are impacted by COVID-19
·   the lender would accept these details from the customer and offer an automatic 3-month payment holiday
·   no evidence will be sought from the customer
·   the lender makes the customer aware that interest will accrue and will be contact at the end of the three months to complete an assessment of the customer’s circumstances
·   at the end of three months, an arrangement to pay will be agreed with the customer according to their circumstances to recover any shortfall, while ensuring that the mortgage remains affordable and sustainable
·   the lender notifies the customer that if they wished to complete a full assessment now, there may be other forbearance options more suitable to the customer.

We hope that this article has given you more information on Mortgage Holidays – What you need to know, but please contact us for more information.


Should you wish to speak to one of our mortage brokers or protection advisers, Click Here and you will find everyone’s contact details.

Your property may be repossessed if you do not keep up repayments on your mortgage.

This firm usually charges a fee for mortgage advice. The amount of the fee will depend upon your circumstances and will be discussed and agreed with you at the earliest opportunity.

Rose Capital Partners Limited is an appointed representative of PRIMIS Mortgage Network, a trading name of Advance Mortgage Funding Limited which is authorised and regulated by the Financial Conduct Authority.


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