Homeowners and landlords can now apply for a three-month mortgage payment holiday by contacting their lender.
The government’s new policy aims to ease the stresses facing borrowers during the coronavirus outbreak.
Since the change was announced on Tuesday, there’s been some confusion about exactly who can apply and how the payment holidays will work, but Which? is here to help.
Here, we answer your questions on mortgage holidays and speak to a homeowner who successfully deferred his payments within hours of the policy being launched.
What is a mortgage payment holiday?
A mortgage payment holiday is when your monthly mortgage repayments are paused for a set period of time.
Under the government’s new policy, you can apply for a payment holiday of up to three months.
Do I qualify for a payment holiday?
Mortgage payment holidays of up to three months are available to all homeowners who are up to date on their mortgage payments.
They’re also available to buy-to-let landlords whose tenants have been financially affected by the coronavirus. Landlords who take payment holidays are expected to pass on this relief to their tenants.
Homeowners who are in arrears on their mortgage should contact their lender, who will review any changes to their circumstances and discuss their options.
Do I need to have the coronavirus?
You don’t need to have contracted or have been tested positive for the coronavirus to apply for a payment holiday.
Payment holidays are available to any homeowners who are concerned about their ability to meet their mortgage repayments, for example due to a loss of work or other changes in their circumstances.
Will I pay more in interest?
Yes. You’ll still owe the bank the same capital amount as you do now, but interest will continue to accrue on this. This means it will take you longer and cost you a little more to clear your mortgage.
With this in mind, homeowners who aren’t concerned about their ability to pay should continue with their repayments as normal.
Will I need to go through affordability tests?
No. Your lender will not require you to provide any documentation or undergo any affordability tests.
Instead, homeowners will need to self-certify that their income has been directly or indirectly affected by the coronavirus.
If you’re a landlord, you’ll need to self-certify that your tenant’s income has been affected by the outbreak.
What happens after the three months?
After three months, your lender will contact you to assess your circumstances and agree on a manageable way for you to make up the deferred payments.
Lenders will provide a range of options, which may include extending your mortgage term or altering your monthly payments if it’s affordable to do so.
Alternatives to mortgage payment holidays
Payment holidays are just one option that lenders can offer, so it’s best to call your bank or building society and discuss what can be done.
As we mentioned earlier, you don’t need to undergo an affordability assessment, but if you’re willing to do so then your bank could offer you more tailored support.
For example, some of the following options may be available:
Will deferring my payments affect my credit score?
The trade body UK Finance, which represents banks and building societies, says mortgage providers will make ‘every effort’ to ensure payment holidays do not impact on your credit score.
The credit referencing agency Experian told Which? that banks shouldn’t register payment holidays as missed payments on your credit report, but ultimately that the responsibility lies with the individual lender.
How do I get a payment holiday?
To get a payment holiday or discuss your options, you need to contact your bank directly on their customer service phone number.
Since the policy was announced on Tuesday, many homeowners have taken to social media to describe their struggles in getting through to their bank, with some claiming they’ve been on hold for a number of hours.
UK Finance says firms are doing their best to support customers and deal with applications as quickly as possible, but may have issues with their own staffing levels.
This morning, Nationwide launched an online service where customers can apply for a payment holiday.
Case study: setting up a mortgage payment holiday
Freelance writer Andrew Dickens set up a mortgage payment holiday with Coventry Building Society yesterday.
He told Which?: ‘I requested the payment holiday for the sake of my mental health. In the space of five days, I’ve had thousands of pounds worth of work cancelled as a direct result of the virus, which is quite a blow.
‘I applied for the mortgage holiday as a pre-emptive strike. The holiday allows me to spread out the cost and feel easier over the next few months.’
Andrew told us that his future mortgage repayments will become around £10 a month more expensive, but he feels the move is worthwhile.
He says: ‘It’s something of a gamble because the mortgage as a whole will become a tad more expensive and I might not need the holiday in the end, but it’s one worth taking for my sanity.’
No effect on credit scores
In line with the guidance from UK Finance, Coventry didn’t undertake a full assessment of Andrew’s financial situation. Instead, he was simply asked why he wanted to take the payment holiday.
He told us: ‘My first question was whether my near-perfect credit score would be affected. The representative told me there would be no mark on my report and no adverse affects. It sounded like he was reading out a prepared line’.
A five-star service
Unlike some homeowners, Andrew found that getting in touch with his lender was a quick and pain-free process.
He got through to Coventry within seconds after some security checks and was passed on to a team set up to deal specifically with these requests.
‘Assuming everything I was told works out then this was a five-star service’, he says.
Help for tenants
Yesterday, the government also announced emergency legislation to protect tenants from eviction.
The new reforms mean landlords won’t be able to start proceedings to evict social or private tenants for three months.
UK Finance says tenants should contact their landlord or managing agent if they will have problems paying their rent.
In turn, landlords should then contact their mortgage lender to discuss their options regarding mortgage payment holidays, which should then be passed on to their tenants.
Our advice on the coronavirus
Experts from across Which? have been compiling the advice you need to stay safe, and to make sure you’re not left out of pocket.
