COVID-19 Mortgage Payment Holiday

Recently, we have seen that the spread of Coronavirus pandemic has impacted the whole UK economy. Individuals & businesses are struggling now days and unable to do payments to their lenders due to lack of money in their hands.

After seeing the criticality of the situation and condition of individuals as well as businesses – On 17th March 2020, UK government made an announcement and provided benefit of 3 months (Now application last date extended to 31 January 2021 and maximum limit up to 6 months) mortgage holiday in order to give support to those persons who are adversely affected by the Coronavirus outbreak. This decision has been taken by the government to reduce the financial burden of people so that they can tackle this critical situation with ease.

Many banks agreed to this recent announcement made by the government to offer some relaxation by deferring the mortgage payments for people who are not in a position to pay interest or repay the loan principal amount on the borrowings they have taken in the past.

Let us understand the concept of Mortgage holiday, a policy by UK government in a detailed manner –

What do you mean by “Mortgage holiday”?

Mortgage holiday is a 3 months relaxation (Now application last date extended to 31 January 2021 and maximum limit up to 6 months) offered by the government on mortgage repayments to those persons who are adversely affected by the Coronavirus pandemic. Under this government policy, monthly mortgage payments are set to pause for the 3 months period (Now application last date extended to 31 January 2021 and maximum limit up to 6 months) but it doesn’t mean that the mortgage payment you need to make for the month is exempted. There is no chance of exemption here. In this 3 months tenure (Now application last date extended to 31 January 2021 and maximum limit up to 6 months) of mortgage holiday, interest will continue to accrue and the deferred payments will also be paid back to their banks or lenders over time along with the interest.

After completion of 6 months limit, lenders will analyse your financial position and make amendments to the payment schedule accordingly. The 3 month’s period (Now application last date extended to 31 January 2021 and maximum limit up to 6 months) of mortgage payment holiday may get further extension, if necessary. Amended guidance will be issued on this by the UK government in case of period extension.

To whom mortgage holiday is applicable?

Mortgage holiday is applicable to all residential and buy-to-let mortgages along with the help to buy equity loans. As per government’s announcement, every lender needs to comply with it.

Who are eligible to get mortgage holiday?

In order to get eligible for mortgage holiday, you need to consider the following points -

1. Mortgage holiday will be offered to all those persons who are adversely affected by Coronavirus pandemic and whose mortgage payments are up to date till now.
2. In case you are buy-to-let landlord, mortgage holiday is only offered to you, when you pass on this relief to your tenants in order to support them in these circumstances when they are unable to pay your dues due to COVID-19.
3. You may apply for mortgage holiday even when you are behind in mortgage payments. It may be possible that after considering your circumstances, lender may provide you other options of relaxation.

Mortgage holiday may not be the most suitable option always for everyone. There are number of options available with lenders by which they can provide tailor made solutions to your financial problem.

How to set up Mortgage payment holiday?

In order to set up mortgage payment holiday, you must consider the following important points

1. Firstly, you need to contact your lender directly and tell him about your financial condition as there are no intermediaries in between. There is no fee charged for setting up mortgage payment holiday and the lender needs to approve the application as early as possible. Lenders are experiencing high call volumes now days and it is suggested that you should apply for mortgage payment holiday through the procedure of online form filling instead of doing phone call.
2. You need to self-certify that you are adversely affected by the Coronavirus pandemic or your tenant’s income has been affected.
3. You may still be eligible for mortgage payment holiday if you are already in arrears. Some lenders are even influencing customers in arrears to come forward to get in touch with them and avail their benefit from the available options.
4. Keep a conversation record between you and your lender or save your e-mail trail in case any evidence of the agreement is required later, you might be able to show it.
5. Keep paying your lender by direct debit facility until you spoke to your lender or arrives on any agreement finalisation. Stopping the payment by direct debit facility is considered as a missed payment which will not only affect your credit score but also makes you ineligible for taking finance of any kind in the next 5 years.

How long mortgage holiday will go on?

As per the government recent announcement, application last date has been extended till 31 January 2021 and the maximum limit up to 6 months, but it may have the possibility of further extension depending upon the circumstances.

What are the advantages of Mortgage holiday?

The Advantages of Mortgage holiday are as follows

1. It gives you sigh of relief without making any affect to your credit rating as long as you are in agreement with your lender.
2. It reduces your burden to some extent
3. It is a good way for landlords to avoid the situation where the landlord is not receiving any income from their rental property i.e. Rental void.

What are the disadvantages of Mortgage holiday?

The Disadvantages of Mortgage holiday are as follows

1. It could increase your monthly mortgage payment later.
2. It could make your mortgage term slightly longer.
3. You will still accrue interest on the principal amount your borrowed.
4. You never know how lenders will treat you in underwriting situation when you purchase any buy-to-let property as a landlord in the near future.

What will happen to my credit score?

If you take a mortgage payment holiday, it will not impact your credit score at all during thispayment holiday period.

Can I cancel my direct debit payment?

No, you should not cancel your direct debit payment without contacting your lender. Cancellation of direct debit payment will be considered as missed payment and this may impact you at the time of re-mortgaging.

How long will it take to process my application?

In this difficult time, lenders are trying their best to help their borrowers instead of high volume of applications. Try to contact your lenders much in advance as they are dealing with the impact of COVID-19 on their staff as well. Lender will try to approve your application as quickly as possible.

What will happen if I am already in arrears?

Lenders are helping and supporting people in this difficult time of Coronavirus pandemic. It is easy for persons to avail this benefit if your mortgage payment is up to date. If you are already in arrears, kindly contact your lender or mortgage provider and tell him about your current financial situation. It may be possible that your lender may provide you with any other available alternatives.

I am an interest only customer. Can I apply for mortgage holiday?

Yes, interest only customer along with past term customers can also apply for mortgage holiday in case you are directly or indirectly affected by COVID-19.

Advice for Homeowners

Mortgage holiday is not the single benefit offered by lenders during this time of pandemic, other options which you can consider are as follows -

1. Interest only payments to lender for a certain period
2. Postpone your interest payments for a certain period
3. Increase the mortgage term in order to reduce your monthly financial burden
4. Add all the deferred payments to the total amount you owe & divide it into the remaining mortgage term.
5. Try to crack the cheapest deal with your lender.

In case you want more information or advice on COVID-19 mortgage holiday, kindly call us on 03330886686 or you can also e-mail us at enquiry@dnsaccountants.co.uk

Also Read :-

• Apply For The Coronavirus Future Fund
• How to get Coronavirus grant from the government for small businesses?
• Coronavirus Business Interruption Loan Scheme (CBILS)
• Government Announces ‘Unprecedented’ Measures for Small Businesses to Fight Coronavirus Crisi

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.