The Chancellor, Rishi Sunak, has announced that mortgage lenders will support customers who are experiencing issues with their finances as a result of Covid-19 and the options include a payment holiday of up to three months.
Stephen Jones, UK Finance CEO, said: “Monthly mortgage payments tend to be the largest outgoing for the vast majority of households and lenders are keen to reassure homeowners that the industry is working hard to put measures in place to support them during these uncertain times.
“Customers who are concerned about their current financial situation should get in touch with their lender at the earliest possible opportunity to discuss if this is a suitable option for them.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, added: “A three-month holiday for mortgage holders who suffer financially as a result of coronavirus will be welcomed by many who have been worried about their jobs and how they will pay the mortgage. There is so much uncertainty that knowing the mortgage, which is most people’s biggest outgoing, will be paid, will remove a significant burden.
“The same is true for those struggling to pay their rent. Speak to your landlord as soon as you can – he or she may be able to apply to their buy-to-let provider for their own payment holiday if otherwise they would struggle to pay their mortgage should you fail to pay the rent.
“Lenders tend to be reasonably sympathetic to any illness that affects a borrower’s ability to pay their mortgage, whether it’s coronavirus or something else. They may ask for evidence that you are unwell but the message to borrowers, particularly the self-employed who are most likely to be affected in terms of their income, is that anytime you are struggling to pay your mortgage, get in touch with your lender. Don’t bury your head in the sand and hope the problem will go away – it won’t.
“Some lenders have existing payment holidays of longer than three months so it is worth asking. But remember that as it stands interest will still be calculated over the period of the payment holiday and then added to the loan along with the repayment part of the payment. The monthly direct debit may then be increased to cover the amount added once you resume your payments.
“The important thing is to ask for help as early as possible rather than ignoring the issue. While lenders should offer support to borrowers, they can only do that if they know there is a problem.
“It is good practice to keep a note of any conversations or correspondence you have with the lender about a payment holiday, as if is not marked down correctly and is noted as arrears, there could be an issue when you come to remortgage in two or three years’ time. But if it is marked correctly, it shouldn’t harm your credit rating.
“Those coming up to remortgage should consider an offset deal, which is a little like a cheap overdraft facility that you can dip in and out as you need it. If you have a £200,000 mortgage and the same amount in savings offset against it, for example, you pay no interest and the real benefit is that you know you have a cash buffer if you can’t work for several months – or longer.”