On March 17th the Chancellor of the Exchequer announced that all lenders will offer a 3 month payment holiday to anyone who is suffering financially due to the Coronavirus pandemic.
The FCA have also issued new guidelines on how mortgage lenders should treat customers fairly.
This has given many peace of mind knowing that there will be some short term relief. However this has also created a lot of unanswered questions around how this actually works and whether there will be any negative impact to future borrowing ability.
Many high street mortgage lenders have recently set up the processes required in order to deal with customer enquiries however for some its still early days and are yet to implement set procedures. The CEO of UK Finance Stephen Jones advised:
“With enquiries to customer call centres at unparalleled levels, firms are also ensuring they are constantly keeping their websites updated with the latest information, including FAQs, which can help answer many customer queries. We would encourage only those customers who are facing an immediate issue with their finances to call their provider in the first instance. If a customer needs more general help there are a range of different ways to get in touch, including through online chat, social media and mobile and banking apps.”
Due to unprecedented volume of calls and enquires it may take longer than normal to get through to your lender at the moment therefore we have put together a frequently asked question section to help alleviate your concerns and answer as many questions as possible.
How do I apply for a payment holiday?
Although this is changing on a daily basis many lenders have set up a dedicated webpage on their customer site which will help provide some answers to your queries. Lenders are also encouraging customers to apply online rather than calling as the amount of enquires has increased substantially.
What is a payment holiday?
If you take a mortgage payment holiday, this means that you wouldn’t make mortgage payments for up to three months and the lender will add these payments onto your mortgage balance. As a result, your mortgage balance will increase and your monthly payment will be recalculated over your remaining mortgage term. Your monthly payment and the amount of interest you pay will increase for the remaining term of your mortgage.
If your mortgage is not in arrears, the mortgage payment holiday will not impact your credit rating, and you will not go into arrears on your mortgage.
If your mortgage is already in arrears, your options for a payment holiday may be restricted but you may be able to set up a different arrangement with your lender.
Will a payment holiday affect my credit score and my ability to get a mortgage in the future?
Mortgage lenders have confirmed that by taking a Payment Holiday your credit score will not be negatively affected, as long as you are not already in any arrears. Indeed the FCA also confirms that “Our guidance makes clear to firms that they should ensure that taking a payment holiday will not impact your credit score”.
Many customers are concerned about the impact that taking a Payment Holiday could have on the ability to borrow in the future. Although there has been no definitive answer from mortgage lenders about this, if you have been adversely affected by COVID-19 then any payment holiday you have taken should not affect your ability to borrow in the future. Please speak to your lender for more information.
Will the Coronavirus affect my mortgage application and could my mortgage offer be withdrawn?
Although a lender has the right to withdraw the mortgage offer this is highly unlikely. As the mortgage has already been agreed its likely the lender will honour this unless your financial circumstances change. For example if there is a significant change to your income and the mortgage is no longer affordable you should consider whether to continue with your mortgage application.
Assuming there is no change to your income, there should be no change to your mortgage application which will be processed as normal. However the situation with any new application is changing on a daily basis. If you have not yet applied then the situation could be different. Currently a select few mortgage lenders have decided to hold off accepting new applications for the short term to cope with the levels of enquires around the impact of Coronavirus. This should be a temporary solution.
My mortgage deal expires soon, will I be eligible for a payment holiday?
If you are “in between” lenders so to speak and have not yet switched, you can still apply for a Payment Holiday from your current lender. If you have recently changed lenders or about to, the usual standard criteria is that you need to have held the mortgage for a number of months usually 3 to 12 months in order to qualify for a Payment Holiday. Because the situation with the Coronavirus is unprecedented and very unique, lenders may have a flexible approach to this and may waive this requirement. In this situation please speak to the new lender to find out their specific criteria regarding this.
Should I reapply for my mortgage now that the Bank of England Base Rate has reduced?
The Bank of England Base Rate has recently reduced from 0.75% to 0.10%. Anyone with an existing tracker or variable rate mortgage will benefit from a reduction in the rate straight away. If you already have a fixed rate mortgage then sorry to say but you will not benefit from any reduction and your fixed rate will continue at the same rate.
If you have recently applied for a mortgage which has not yet started or completed then you may have the ability to change to a lower product and rate with the same lender. You need to check whether or not there will be any charges applicable to do this.
I am a Landlord and my tenant cant afford the rental payments. What are my options?
The Government has announced that residential buy-to-let landlords are entitled to the same three-month mortgage repayment holiday as residential homeowners if they have tenants struggling to pay rent due to Coronavirus (Covid-19).
The government has also announced that Landlords are unable to evict tenants if they are unable to pay their rent due to the Coronavirus pandemic. Landlords and tenants are encouraged to work together to come to an affordable payment arrangement.
Lenders such as BM Solutions (part of the Halifax group) and The Mortgage Works have already confirmed that they will pass on the 3 month payment holidays to Landlords.
What happens to my mortgage insurance premiums if I take a payment holiday?
Even if you are on a Mortgage Payment Holiday you should continue to pay your insurance premiums as these will not be waived. Your insurance premiums may be waived if you have “waiver of premium” option on your plan and the reason is due to illness which prevents you from working. If this is the case contact your insurance provider to discuss your options.
It is vitally important, particularly due to the risk of becoming ill that you do not cancel your policies or stop paying your insurance premiums as you may need your cover now more than ever.
If you struggling to pay your mortgage insurance premiums contact the insurance company straight away as they may be able to come to some alternative arrangement with you.
I don’t have any mortgage related insurances. Am I at risk?
If you have mortgage and you do not have any mortgage insurance then depending on your circumstances you could be at a higher risk.
Due to the heightened risk of contracting the Coronavirus, some insurance companies have changed their underwriting criteria to include questions around the symptoms of the illness. Please contact us as soon as possible to discuss your own individual circumstances to ensure you are properly covered and protected. If you have not reviewed your mortgage or family related insurances for a while now is the time to do so to ensure you and your family are adequately protected.
Has your service or advice changed since the Coronavirus Pandemic?
We will continue to offer the same efficient and reliable service you have been used to and we are still committed to providing you with the same first class advice going forward and that will not change.
We are following government guidelines closely and with that in mind we have decided only to offer telephone and video appointments going forward until we hear otherwise. When you send over an enquiry to us we usually offer an initial telephone appointment. Any additional appointments will be carried out over the phone or via video link. This will have no negative impact whatsoever as we can provide exactly the same efficient service and advice.