Support for mortgage customers during Covid-19

Q&A

Lenders are offering a range of tailored support measures for customers who are experiencing issues paying their mortgage during the Covid-19 pandemic, including taking a mortgage payment deferral (sometimes referred to as a ‘payment holiday’). 

As always, the guidance is that if you are able to pay your mortgage – you should. It will always be in your best interests to pay at least some or all of your mortgage if you can, as this will reduce the amount of your total repayments in the long run.

However, if you are concerned about making your mortgage payments during this time you should look at your lender’s website in the first instance. This will be updated with the latest information, including frequently asked questions, which should answer many queries.

While we would encourage customers who can use mobile and online banking services to do so, telephone services are also available but it may take a little longer than normal for customers to get through because of call volumes.

Do not cancel your direct debit - you must agree a payment deferral with your lender in advance.

Cancelling your direct debit is not a payment deferral and it will be counted as a missed payment. This could show up in your credit file and may impact your ability to borrow or re-mortgage in the future.

Extension of mortgage payment deferrals

As the pandemic continues, lenders have agreed with the regulators and HM Treasury to extend the availability of mortgage payment deferrals. Applications for a payment deferral (sometimes called a mortgage payment holiday) initially closed on 31 October 2020. However, because of continued Covid-19 restrictions, availability has been extended and applications can be made up to 31 March 2021. All mortgage payment deferrals will cease on 31 July 2021.

KEY POINTS

In total you will be entitled to up to six months deferral of your mortgage payments for the period from the start of the pandemic in March 2020 until 31 July 2021.

  • If you have not had a payment deferral so far you will be entitled to an initial deferral of three months.  Before the end of this three months you will be contacted by your lender to establish your financial position and provide options. If you are still affected financially by Covid-19 you will be able to extend your deferral by a further three months. 
  • If you have already had one or more payment deferral(s), but these do not add up to six months, you will be entitled to a further deferral period that takes you to the full six months as long as it is within the specified dates (31 March for applications and 31 July when all deferrals come to an end).
  • You will need to ask your lender for a payment deferral using the process set out on their website, but unless you are ineligible a deferral should be granted.
  • If you have had a full six-months payment deferral but still have difficulty in meeting your mortgage payments your lender will offer you continued support that is tailored to your needs.
  • If you do not apply for a mortgage payment deferral in good time before your February payment is due you will only be able to receive a deferral until 31 July 2021 which may mean you have fewer than six months. For example, if you apply well in advance of your March 2021 payment, you will only get a deferral until 31 July 2021, a total of five months.
  • If you have missed mortgage payments/or are already in arrears you may be eligible for a payment deferral.  You should contact your lender if you are in payment difficulties – tailored support specific to your circumstances may be the best option for you.

Your lender will contact you towards the end of each payment deferral period to establish your financial situation and provide you with options. If, at that point, you are able to recommence making payments on your mortgage you should do so. However, if your finances continue to be adversely impacted by Covid-19, lenders will be able to provide further tailored support. They may also signpost you to a debt charity for extra help if your situation calls for this.  

Payment deferrals on the same terms set out above will also be available to all buy-to-let landlords, to allow landlords to pass on the benefit to tenants who may have been impacted by Covid-19.

 It is important to remember that you will still owe the money where a payment deferral has been granted and interest will still accrue. Your lender will reach an agreement with you at the end of the deferral period on how this money is to be repaid. This will depend on your circumstances but could include adding the accrued deferral money that has not been paid to your outstanding mortgage and then spreading the cost over the rest of the mortgage term.

Before contacting your lender, we encourage you to visit the Money Advice Service website and use their mortgage deferral payment calculator to find out what a payment deferral will mean for your monthly payment at the end of the period.

Mortgage providers will make every effort to ensure that if you take a payment deferral it does not negatively impact on your credit file. If at a later time you apply for a new or additional loan, a lender will need to satisfy itself that you are in a position to maintain your future payments and may therefore ask you to declare any previous payment deferrals as part of its loan affordability assessment.

If you are already in arrears, you should contact your lender as soon as possible. Lenders will review any change to your circumstances to ensure that payments remain sustainable, but you may still be able to take a payment deferral.

If you are already experiencing financial difficulty, the moratorium on residential and buy-to-let possession action has been extended to 31 January 2021, meaning that no homes will be repossessed at this difficult time, unless the customer requests it, or the property is vacant. However it should be noted that lenders can recommence activities that may lead to repossession, including court hearings. Lenders will make clear to the customer that they will not repossess until after the moratorium.

  1. What is a mortgage payment deferral?

With a mortgage payment deferral (also known as a mortgage payment holiday) you will not have to make monthly mortgage payments for a set period of time.

However, it’s important to remember that you still owe that money and the interest on your mortgage still accrues during a payment deferral period.

Your provider will contact you before the end of each payment deferral period to assess your financial position at that time and provide you with options.  Ultimately your lender will need to agree an arrangement with you to repay these deferred payments. If you were previously up to date with your mortgage payments, the lender may offer you the option to add the outstanding balance to your mortgage. This could result in an increase in your future monthly payments. Each lender will discuss your needs with you and will offer you tailored support if you require further help.

  1. What happens if I have already had a six-month payment deferral but continue to be financially impacted by Covid-19 and have difficulty making my mortgage payments?

If your finances continue to be impacted by Covid-19 and you have had a full six-months of payment deferrals your lender will discuss alternative support with you, tailored to your needs. It is essential that you contact your lender before you miss a payment - your lender’s website will tell you how best to do this.

When you speak to your lender it is important that you give them as much information about your circumstances as possible to help them understand the appropriate support to offer. Your lender will ask you a range of questions about your circumstances, including your monthly income and expenditure and it would be useful if you have this information to hand. Your lender will also explain the impact on your credit file of the support that is offered.

This support could include, but is not restricted to:

  • making a part payment for a short time
  • extending the length of the mortgage term 
  • changing the type of mortgage for example a temporary change to an interest-only mortgage  
  • deferring payment of the interest due 
  • adding what you owe to the balance of the mortgage – this is called capitalising.

It will always be in your best interests to pay at least some or all of your mortgage if you can, as this will reduce the amount of your total repayments in the long run.

You may also be eligible for other government support and we encourage you to visit the Money Advice Service website to understand what additional help might be available to you. 

  1. Will I be eligible for a payment deferral?

All customers are eligible for a payment deferral. The application window for a payment deferral will remain open until 31 March 2021 and all payment deferrals must end by 31 July 2021.

  • If you have not yet taken a payment deferral on your mortgage, you are eligible for payment deferrals of up to six months in total.
  • If you have had one or more deferrals, but these do not add up in total to sixmonths you are eligible for a final deferral period to take you up to the full six-months.
  • If you are coming to the end of your final payment deferral you will automatically be contacted by your lender. If you are able to recommence making payments on your mortgage you should do so. However, if your finances continue to be impacted by Covid-19, lenders will be able to provide further support or additional signposting (possibly to a debt charity) that best suits your needs.  

If you are a buy-to-let landlord, you will be eligible for a mortgage deferral of up to sixmonths to allow you to pass on the benefit to tenants who may have been impacted by Covid-19. If you are behind on your mortgage payments, your lender may be able to offer you a payment deferral, amongst other options, once they consider your circumstances.

There a number of options available and payment deferrals aren’t always the most suitable solution for everyone. By speaking to your mortgage provider, they can tailor their support to provide the best option for you.

  1. How do I apply?

If you are concerned about making your mortgage payments you should contact your mortgage provider as soon as possible. You don’t need to provide any documentation; you will just need to self-certify that your income has been either directly or indirectly impacted by Covid-19.

Landlords are strongly encouraged to pass on this relief to their tenants to ensure that they are supported during this time.

You can apply for a payment deferral at any time before the next payment is due. However, the last date to apply for a deferral is 31 March 2021. The payment deferral will not start, however, until it has been agreed with your lender.

Mortgage provider telephone lines are exceptionally busy at the moment. This means that those who are most in need and the most financially vulnerable – are struggling to get through. Before calling please: 

  • Ask yourself: Do I need to speak to my mortgage lender today? 
  • Consider: Can I do this through mobile or online banking? 
  • Review: Is the answer already on my lender’s website? 
  1. How long will it take to for my provider to process my application?

Firms are doing their best to support their customers during these unprecedented times. However, Covid-19 is also having an impact on their own staff and applications will be dealt with as quickly as possible. Firms will have information on their processing time on their website, it is important that you request a payment deferral before your next monthly payment is due.

  1. I can’t get through to my lender, can I just cancel my direct debit payment?

Do not cancel your direct debit - you must agree a payment deferral with your lender in advance.

Cancelling your direct debit is not a payment deferral and it will be counted as a missed payment. This could show up in your credit file and may impact your ability to borrow, or re-mortgage, in the future.

  1. If I take a payment deferral what will happen to my credit file?

Mortgage providers will make every effort to ensure that if you take a payment deferral it does not negatively impact on your credit file. If at a later time you apply for a new or additional loan, a lender may ask you to declare any previous payment deferrals as part of its loan affordability assessment.

Under the regulator’s rules, lenders are required to undertake an income and expenditure assessment for any new borrowing and will consider a range of factors as part of this process. Lenders have a duty to lend responsibly and consider the affordability of the mortgage or loan in the long term. It would not be in the customer’s interest to lend more than they can reasonably afford.

  1. If I receive additional support from my lender after a six-month payment deferral what will happen to my credit file?

Lenders have standard procedures for reporting details of a mortgage account to credit reference agencies. This will show whether any mortgage payments have been missed.

Payment deferrals under the Covid-19 scheme will not be recorded on your credit file as a missed payment. 

If you receive further tailored support from your lender after your payment deferral comes to an end the arrangement that has been agreed with your lender will be shown on your credit file. This includes any additional payment deferrals granted beyond those offered as part of the Covid-19 support. This helps to ensure that other users of information held by the credit reference agencies have a more complete picture of your circumstances.

  1. What happens if I am already in arrears?

Contact your mortgage provider as soon as possible. Lenders will make every effort to support people in financial difficulty and will make this process as simple as possible.

Your mortgage provider will assess your circumstances and ensure that your payments remain sustainable, this may include an offer of a payment deferral.

A moratorium on residential and buy-to-let possession action remains in place until 31 January 2021, meaning that no homes will be repossessed at this difficult time, unless they are already empty or it is the borrower’s choice.

  1. What if I don’t own my property but rent instead?

You should contact your landlord or managing agent if you have problems paying your rent. If you are a landlord and your tenants are unable to pay their rent you should contact your lender as soon as possible to discuss the options that may be open to you. Landlords are strongly encouraged to pass on the relief of any mortgage payment deferral they take to their tenants to ensure that they are supported during this time.

  1. How will the possession moratorium work?

Lenders will not repossess any homes until 31 January 2021. However, lenders can recommence activities that may lead to a repossession.

There may be exceptional circumstances where possession continues, including where the customer wants the possession to go ahead or if the property is vacant

Given the ongoing uncertainty due to the pandemic, it is important that you understand what is happening to your mortgage. You will receive a letter from your lender explaining the process, the money that you owe, any costs and supports for re-housing. The lender will make clear that they will not repossess the house until 31 January 2021.  

  1. I am an interest only customer. Can I apply for a payment deferral?

Yes, interest-only customers can apply for a payment deferral, including those who are past-term, if they are directly or indirectly financially impacted by Covid-19.

  1. I have an interest-only mortgage, Covid-19 has impacted on my ability to repay my mortgage. What help can I get?

If you are experiencing financial difficulty you should contact your lender as soon as possible, as there may be range of options available. If your interest-only or part-and-part mortgage expires between 20 March 2020 and 31 October 2021 you may be eligible for further help. If your ability to repay the capital of your mortgage at the end of the term has been impacted by Covid-19, lenders can support you by allowing you to delay this payment until 31 October 2021. There will be no adverse reporting on your credit file for delaying repayment of your capital.  

Customers can take advantage of a mortgage payment deferral after their mortgage has matured and will still be able to delay repaying their capital until 31 October 2021. However, there may be implications in doing this so speak to your lender.

Lenders will write to customers who are eligible for this support and it is important that you contact your lender if you require this help, before missing your capital repayment date. 

Lenders will carefully explain the implications of delaying repayment of the capital sum. It will always be in your best interests to pay some or all of your capital repayment if you can. Choosing to delay the repayment of capital could expose you to further risk, for example should there be further market disruption at the time when the capital becomes due to be repaid.

  1. I am a trapped borrower (also known as a mortgage prisoner) and have been impacted by Covid-19. Will this impact on my ability to switch? 

Mortgage lenders, in accordance with FCA guidance, will use data from a variety of sources when approving mortgages. The FCA has stated that borrowers should not be considered to be in payment shortfall during a Covid-19 related payment deferral period and therefore a customer who has taken a payment deferral will not be considered to be in arrears.  

However, lenders will look at your payment history to ensure that you can make regular mortgage payments and to demonstrate that the mortgage is affordable both now and for the longer term. For this reason, if you can afford to make mortgage payments you should do so as this will improve the chances of getting a mortgage with a new lender. 

Contact

The BSA Team

information@bsa.org.uk