Following this morning’s HM Treasury announcement on support for mortgage borrowers, now is a good opportunity to clarify exactly what this means for borrowers.
A window of opportunity?
Borrowers who have not yet taken a mortgage payment holiday but feel they now need one have until 31 October to apply by contacting their lender.
Those who have already taken a payment holiday and want to explore extending it due to covid-19-related financial difficulty should also contact their lender.
This is not a blanket nor automatic extension of payment holidays - and with good reason. A recent survey revealed that 70% of those currently on mortgage payment holidays feel confident they can pay their mortgage once the 3-month period comes to an end, which is encouraging news. If a borrower can pay their mortgage then we’d encourage them to do so.
It is crucial that borrowers don’t interpret a payment holiday as ‘free money’, it is a payment deferral. All repayments – and the interest accrued over the holiday period – will need to be paid by the end of the mortgage term. This could be achieved by amongst other things, adding the holiday period onto the end of the existing mortgage term (e.g. 25 years + 3 months), by recalculating the monthly repayment amount to factor in the deferred payments, or by payment of a lump sum post-holiday.
Support needs to be tailored to be effective
Support is available for those who feel less confident in their ability to meet repayments after 3 months and at any time after that too. For many borrowers in this position, a ‘blind’ extension could exacerbate financial difficulties and simply kick the problem further down the road. A personalised approach is needed.
There will be no ‘cliff edge’ moment at the end of borrowers’ existing payment holiday. Lenders have an arsenal of tools which can be tailored to support an individual’s needs. A payment holiday is just one of these tools, and it’s not necessarily the best fit for all borrowers.
None of us want to see borrowers getting into deeper or unsustainable levels of debt, which is why we encourage borrowers with any concerns to contact their lender to explore the widest range of options available. The earlier someone gets in touch, the easier it will then be to work out a suitable solution for their particular circumstances.
It is important to reinforce that possession is always an absolute last resort for lenders. With the extension of the repossessions moratorium, homeowners should feel reassured that they are secure in their own homes.
Wide-scale payment holidays were a great tool in overcoming the initial peak of the pandemic. Over 90% of homeowners who have taken a payment holiday said that they found it helpful in navigating the financial challenges brought on by the coronavirus.
Now it’s about moving forward from the peak, but with a more bespoke and responsive approach that our sector will continue to deliver – just as it has done for almost 250 years.
Report - What next for mortgage payment holidays? The views of borrowers
Brochure – Can’t pay your mortgage? Help is at hand