Mortgage Payment Holiday [COVID-19]
This article was published on: 20th March 2020Matt Pugh
The outbreak of coronavirus (COVID-19) has resulted in many people facing a significant loss of income, with those in the entertainment and hospitality industries facing an uncertain future as pubs, clubs, restaurants, music venues, theatres all shut down or lose audiences.
For many, mortgage or rent payments are their biggest outgoing. Low income workers and those who are self-employed will be the most financially impacted by the pandemic following the Government’s advice to remain at home where possible and to practice social distancing. There is an increased fear that many people will be unable to afford their mortgage or rent payments if they are forced to stay at home and self-isolate.
Banks have recently revealed how they intend to support homeowners by announcing their intention to implement a mortgage payment holiday for up to three months, in order to support households affected by coronavirus. Although such a holiday would only be applied to those in need of help, repossessions are extremely unlikely to take place during this crisis.
It is important that the borrowers affected by coronavirus do not simply stop paying their mortgage, but rather they contact their lender in order to discuss whether the payment holiday is a suitable option for their situation. This short-term break from mortgage payments will provide breathing space to the borrowers who will receive some reassurance on how they are going to afford their biggest outgoing.
However, although the payment holiday is advantageous to those struggling to pay, borrowers need to be aware of the details of such a process. While, on one hand, any breaks to the mortgage payments offered during this period will not have an impact on the customer’s credit score, the 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. This means the monthly direct debit will be increased to cover the amount added once payments are resumed.
The effects of coronavirus are likely to be long term, meaning that at the end of the payment holiday period, although the mortgage rules will re-apply, lenders will assess individual circumstances to come to an agreement on how to repay their mortgage arrears.
Although not without its issues, the implementation of the mortgage holiday period will undoubtedly be useful as the consequences of coronavirus become more apparent.