Hiten Ganatra of Visionary Finance takes a look at what this means for UK landlords.
A break from paying the mortgage will be a lifeline to those who have experienced an abrupt loss of income and where they have little or no money set aside to help them through challenging times. As well as helping those that have already taken up the payment holiday, the extension allows borrowers who have not yet asked for one who may suffer financial difficulty in the coming weeks or months - the scheme is now running until 31 October.
Landlords are included in the rules to help those whose tenants are experiencing difficulty paying. Those in the private rented sector have been equally exposed to the financial impact of the Covid-19 outbreak as homeowners. Landlords who have tenants that need a break in paying rent can be flexible, thanks to the mortgage payment holiday scheme.
However, it’s important for borrowers to understand the terms of the ‘holiday’. This is by no means a freebie from your lender. Your mortgage interest will rack up for every day you take a payment holiday.
Official figures from UK Finance – the banking trade body – state that the typical loan size of someone taking a mortgage holiday is £132,128 with about 18 years left to run, with a typical rate of 2.37%. That means a typical borrower that has taken the three-month break will pay an extra £513 in interest, having delayed £2,256 in repayments. By continuing the holiday for the extra three months now on offer, that same borrower would add £948 in interest to the loan, having delayed £4,512 in repayments.
We are urging borrowers to take the break only if they really need it. Our view is that borrowers can really take the pressure off household finances by applying for a mortgage holiday. But it should only be used by those who are unable to meet their monthly commitments. There are costs involved with taking the break, and there’s uncertainty about the long-term impact of having taken up the holiday.
It’s the same message for landlords who might be tempted to take up the scheme ‘just in case’.” A mortgage holiday may not be the best option if your circumstances are unlikely to change, for example, as your payments will return to normal after the three months are up. You might be better off talking to your lender or your broker about other options, such as reduced monthly payments by restructuring the loan.
For example, you may be able to change to just paying the interest on your mortgage, rather than paying off the full amount. Should you decide the holiday is right for you, as before, you need to agree on it with your lender – you can’t just cancel your mortgage direct debit. Doing so would mean going into arrears which will be logged on your credit file.
Getting a mortgage after a payment holiday
There has been much debate in whether the mortgage payment holidays will impact a borrower’s ability to remortgage in the future. It is possible that lenders could use the fact a borrower has taken a payment holiday against them when they try to get a new mortgage. It is still unclear how this will pan out in the long-term.
If you are worried about the cost of your mortgage, it is worth reviewing the deal you’re currently on, to see if you can reduce your payments simply by switching.
We are seeing some excellent mortgage rates being available at the moment, with some below 1.5% so there is every chance you can cut the cost of your monthly outgoings.
A chat with a fee-free broker won’t cost you anything so there’s nothing to lose in asking your broker to investigate what can be done.
