COVID-19 Mortgage Holiday FAQs
Recently, we’ve seen a huge shift in the way we live our lives in the UK due to the coronavirus pandemic. Alongside the health and lifestyle guidance we’ve been given, the government has also set up several financial initiatives to reduce the financial burden on individuals and businesses during this time to help reduce the long-term impact of COVID-19 on the economy.
One of these initiatives is a ‘holiday’ on mortgage payments, where many banks have agreed that they will offer forbearance on mortgage repayments for anyone who may be struggling to afford their repayments during the coronavirus crisis.
If you’re a home owner looking for more information about this ‘mortgage holiday’ including what it is, who can benefit and how you can apply for support then read our guide below where we’ve asked our partners at CMME to answer some frequently asked questions regarding the mortgage holiday.
What exactly is the ‘mortgage holiday’?
A mortgage payment holiday is when your monthly mortgage repayments are paused for a set period of time.
To be clear, the mortgage repayment is deferred for an agreed period and the monthly payment for that period changes to zero, while interest continues to be accrued for the period and the deferred payments will still need to be paid back over time, with interest.
Do we know yet how long the mortgage holiday is for?
Under the government’s new policy, you can apply for a payment holiday of up to three months. The terms and process are specific to every mortgage lender and will be an adjustment of their existing criteria for these arrangements.
Who is the mortgage holiday applicable to?
Payment holidays are available to any homeowners who are concerned about their ability to meet their mortgage repayments, for example due to a loss of work or other changes in their circumstances.
The good news is that contractor friendly lenders are fully committed to offering these holidays, which can be taken alongside the Government’s income support for the self-employed, providing additional financial relief.
You don’t need to have contracted or have been tested
positive for the coronavirus to apply for a payment holiday.
The latest three month mortgage payment holiday offer is available to:
- all homeowners who are up to date on their mortgage payments.
- buy-to-let landlords whose tenants have been financially affected by the coronavirus. NB Landlords who take payment holidays are expected to pass on this relief to their tenants.
Homeowners who are in arrears on their mortgage should contact their lender, who will review any changes to their circumstances and discuss their options.
How can homeowners utilise the holiday?
The process is not automatic and will require you to contact your mortgage lender to agree the payment holiday or discuss your options, you need to contact your bank directly on their customer service phone number on online. Be warned though; due to the unprecedented nature of the situation most lenders are receiving a high volume of inbound calls to discuss a holiday. Be prepared to wait on hold for an extended period as you will need to be patient and allow yourself plenty of time when making contact.
In terms of the process, your lender will not require you to
provide any documentation or undergo any affordability tests. Instead,
homeowners will need to self-certify that their income has been directly or
indirectly affected by the coronavirus. If you’re a landlord, you’ll need to
self-certify that your tenant’s income has been affected by the outbreak.
On acceptance of your application the mortgage repayment will be deferred for an agreed period (up to three months) and the monthly payment changes to zero for the duration. Of course, you’ll still owe the bank the same capital amount as you do now, and the interest will continue to accrue on the debt. This means it will take you longer and cost you a little more to clear your mortgage balance.
With this in mind, homeowners who aren’t concerned about their ability to pay should continue with their repayments as normal.
After three months, your lender will contact you to assess your circumstances and agree on a manageable way for you to make up the deferred payments. Lenders will provide a range of options, which may include extending your mortgage term or altering your monthly payments if it’s affordable to do so.
Do you have any particular advice for homeowners during the COVID-19 crisis?
Payment holidays are just one option that lenders can offer, but depending on your circumstances, there could be other options for you to consider. These could include:
- To move your mortgage to interest-only payments for a period
- To defer your interest payments for a period
- To extend your mortgage term (reducing your monthly payments)
- To add the deferred payments to the overall amount you owe and spread this over the remaining mortgage term
Re-mortgaging could be well worth considering at this time, not least, to take advantage of the recent interest rate cuts, which could mean securing a cheaper deal – especially if you’re currently on a standard variable rate or your lender hasn’t chosen to pass on the base rate reduction to their customers. You could opt to extend the term of your loan at the same time. Both measures would help to reduce your monthly repayments so it’s wise to check how your current lenders rates compare to the market.
Want some advice?
For help and advice on the above options or any other mortgage related queries, we have partnered with expert mortgage brokers CMME who specialise in the needs of contractors and self-employed professionals.
For any queries relating to your limited company during this time, please get in touch with us, fill in the form below to request a call back or contact your SJD accountant directly.