All mortgage lenders are going to be introducing a three-month mortgage payment holiday for borrowers affected by coronavirus. That is the headline promise.
But are you eligible, how can you claim and how will it work?
I will keep this article updated as more information emerges.
Who is eligible for a mortgage payment holiday?
UK Finance, the trade body for banks and other mortgage lenders has put out a statement: Support for mortgage customers.
To be eligible for a payment holiday you will need to be up to date on your mortgage payments.
If you are a buy-to-let landlord, it will be available if your tenants have lost income because of the impact of Covid-19.
There a number of options available and payment holidays aren’t always the most suitable solution for everyone. By speaking to your mortgage provider, they can tailor the best option for you.
You need to ask your lender for a payment holiday
You have to ask your lender for this, a lender can’t apply it automatically because they don’t know if you are affected by coronavirus. And not everyone who is affected will need the payment holiday.
Lenders are putting up webpages to explain what you have to do. Many banks are saying you need to phone them, Nationwide has helpfully introduced an online form where you can ask.
If you have a joint mortgage, it is likely that both of you will have to agree to the mortgage holiday.
Banks may differ in what they need to see show that you are affected, but my guess is this will be a “low bar” to get over:
- you aren’t going to be asked to produce any medical evidence;
- show the lender any emails from your employer about reduced hours or being laid off;
- explain if you are self-isolating or if your child’s school is closed;
- if you are self-employed, just give a short statement about how your business has been affected.
“But I can’t get an answer from my bank”
This Guardian article has examples of communications problems at the moment: Mortgage holders struggle to contact banks for payment holiday.
And this is what a Debt Camel reader reported yesterday:
We were originally told by our lender, Barclay’s, that they weren’t offering a mortgage holiday even after the government announcement. Then they updated their website to say they were, but when I called the number there is a recorded message saying they aren’t able to offer them right now and it could be several days before they have worked out the details. I got a message online saying I should keep checking their advice online ‘over the next few weeks’ for updates.
Not all lenders are having problems. Which? has a case study where someone had a “quick and pain-free process” with Coventry Building Society.
And one reader in the comments below this article described how he couldn’t get through but then came back later to say:
I’ve actually got through and I have got the 3 months break, it was quite painless really,
All banks need to get their act together very soon. People are already very stressed and worried about their family. For people with mortgages, a mortgage payment holiday looks like a lifeline and they need this settled as soon as possible.
There is a concern that if someone has to cancel a mortgage direct debit payment next week – or it bounces – before their lender has agreed on a payment holiday, they could then be barred from taking a payment holiday as they are technically in arrears. I think that would be against the spirit of what mortgage lenders have agreed and, if it happens, customers should complain.
How a mortgage payment holiday will work
In a mortgage holiday you don’t make any payments. This doesn’t stop interest being charged, you just aren’t paying it during the break.
Some mortgages have this sort of facility built-in, but most don’t so this is being added to all mortgages. If you have already had a mortgage holiday in the past, this should not stop you getting another one now.
At the end of the holiday, you resume mortgage payments. At that point you will need an arrangement to repay the payments you have missed and the small amount of extra interest you will have been charged.
The two main options are either to extend your mortgage term by three months or to spread the missed payments over the rest of the mortgage term. Talk to your bank about whether you have a choice between these.
There is a calculator here that lets you see how much your monthly payment may increase if you choose to repay the three months missed payments over the current term of your mortgage.
Are there any alternatives?
Some banks may suggest alternatives to a payment holiday that could be better for you if you can make some payments over the next few months. For example, Barclays suggests some people may prefer to switch to an interest-only mortgage for a year.
This won’t affect your credit record
UK Finance said:
Mortgage providers will make every effort to ensure that if you take a payment holiday it does not negatively impact on your credit score.
That may sound not 100% definite, but the Credit Reference Agencies have now confirmed this, see Coronavirus – good news about protecting your credit score.
Mortgage payment holiday FAQs
What if my mortgage fix is ending during the payment holiday?
Unless you can get a new fix, when a fixed rate ends, you go back to paying some other variable rate – for most mortgages, this is your lender’s Standard Variable Rate.
I think you should assume that you won’t be able to remortgage with a different provider when a fixed rate has ended if you are in the middle of a payment holiday.
Your current lender may be prepared to offer you a new fix. Or you may have to wait until the end of the payment holiday to be offered one.
“I already have mortgage arrears 0 can I get help?”
You will be offered help. But what will depend on your situation.
If you already have a plan in place with your mortgage lender to repay arrears, you need to talk to the lender about how that can be changed because of a fall in your income over the next few months. The FCA, who regulates mortgages, says:
Customers in payment shortfall should not receive less favourable treatment than other customers.
This is what one reader reported in the comments below this article:
they have done a ‘concession’ which appears different from a payment arrangement in that our arrears, as reported to the credit reference agencies, will not get worse despite paying back less than a standard monthly payment. And the capital we are not repaying will not be chased for once we are back on an even keel, it will just get spread right over the remaining term. So that’s not bad.
With no plan in place, you should talk to your lender and you should also get debt advice. You can call National Debtline on 0808 808 4000 or contact Shelter.
The good news is that mortgage lenders have agreed to a three-month moratorium on residential and buy-to-let possession action from 19 March 2020. So your lender won’t go to court because of your arrears, even if they get worse.
But you still need debt advice as soon as possible. Don’t delay for 3 months while your situation deteriorates.
“Can I get a payment break if I am in an IVA?”
Yes, you can. An IVA will have wrecked your credit score but that is irrelevant – your lender still has to offer a payment break.
What if I still have problems after 3 months?
Many people will be worried about this – you think you may never get your job back, your self-employment income will take a long while to recover or the children may not be back at school until September.
But at the moment all anyone can do is try to get through the next few months. And a mortgage payment holiday will be a great help. For what you do about your other debts, read Coronavirus – how can you pay your debts & bills?