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Can I take a mortgage payment holiday due to the Corona Virus (COVID-19)

Can I take a mortgage payment holiday due to the Corona Virus (COVID-19)

A common question during the worldwide pandemic & a bold move by the UK Government to enable people with mortgages to take a 3-month mortgage payment holiday, but what are the implications & how will each lender interpret the mandate.

Well, as I’m sure you’ve guessed, every lender has interpreted the ruling in varying different ways & the only true answer is to contact your lender directly to understand what they require of you to take the payment holiday.

Many lenders will accept an email or phone call from you to freeze your mortgage payments for up to three months.

Some will require you to complete a form, sign & return.

Some want you to justify the request. Have you been made unemployed or furloughed? Has your employer reduced your hours or cut your pay during this period? Are you self-employed & now have little or no income. All these reasons would be acceptable. What wouldn’t be acceptable would be if you are still employed, receiving 100% of your income but just fancied a 3-month payment holiday to help build savings or clear debts.

When it comes to those with a “Buy to Let” mortgage then an additional layer of qualification may be added.

As with residential mortgages, buy to let mortgages are also eligible for a 3-month mortgage payment holiday &, just like residential mortgages, the criteria to qualify varies from lender to lender. Again, some will accept a call or email while others want signed agreements. But, as many Buy to Let mortgages are based on rental income rather than you’re personal income several lenders are requiring you to prove that your tenant has been financially effected by the pandemic for you to qualify for the payment holiday.

Ok, so now you know that the only true way to know if you qualify for the 3-month mortgage payment holiday is to call your lender, what are the implications of the payment break?

First & foremost, you’re not getting three months of not paying your mortgage, you’re just adding the 3 monthly payments to the end of your mortgage term. If your current mortgage has 25 years to run & you take the payment holiday, then your last mortgage payment will be in 25 years & 3 months’ time. This means you’ll be paying interest on the money you’re not paying now for the rest of your mortgage term. So, if your monthly mortgage payment is £500 & you take the 3-month break, you’ll be paying interest on that £1,500 until the end of your mortgage.

Secondly, some lenders are taking the stance that you cannot complete a product transfer (switch to a better rate) if you are in the 3-month payment holiday, which means you could come out of your payment holiday & the rates available to you are far worse than those available today. If you’re out of any current offer period it may be worth switching to a better rate before asking for the payment holiday – speak to an independent mortgage adviser for advice.

One good thing is that, taking the payment holiday will not adversely impact your credit rating. It’s not to be treated as you’ve missed three months mortgage payments rather than it’s an agreed payment holiday between yourself & your lender.

PaulFlavin

Paul Flavin

Paul Flavin is the Managing Director of Mortgages Online and has been working in the mortgage industry for over 20 years. Running a successful independent mortgage broker since 2010, Paul oversees Mortgages Online and creates articles regularly – drawing on his years of mortgage experience.

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