Coronavirus and mortgage payment holidays – what help can home owners get?
Mortgage lenders have set out how they will offer payment holidays of up to three months for borrowers who are in financial difficulty due to coronavirus.
Stephen Jones, UK Finance chief executive, 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.”
Here are some answers from UK Finance, which represents financial firms, to general questions that customers may have about their potential options:
– How do ‘payment holidays’ work?
The mortgage repayment is deferred for a period. The monthly payment changes to zero, and interest accrues for the period. This may be particularly appropriate where there is a temporary shortfall of income.
But it is not a solution where, because of a permanent reduction in income, a borrower is unable to afford anywhere near the full mortgage repayments and there is little prospect of an improvement in the situation in the foreseeable future.
Where repayments are deferred for a time, the borrower will need to make up these repayments in the future, which could be over the remaining term.
– Will all customers receive an automatic three-month payment holiday?
Firms will help customers in the best way for the individual, so an automatic payment holiday may not always be the most suitable approach and may not be required by all customers.
Firms will be speaking to credit reference agencies to ensure consistent treatment of those customers to whom a repayment holiday is made available.
– How do I apply for a payment holiday?
Lenders are offering customers who are up-to-date with their mortgage payments and impacted by coronavirus the ability to self-certify if they need help.
Under usual circumstances, the lender would have to assess the customer’s finances and consider what forbearance options may be the most suitable.
This is being waived to allow firms to implement a more straightforward process in an otherwise stressful time.
It is important that customers who believe they may be impacted, either directly or indirectly, contact their lender at the earliest possible opportunity to discuss if the payment holiday is a suitable option for them.
– Are all customers eligible for a payment holiday?
This is one of several options. The offer of a payment holiday can be made available to customers not already in arrears and up-to-date with payments.
Under Financial Conduct Authority (FCA) rules, lenders must ensure that any forbearance offered enables recovery through full repayment of arrears, minimises the long-term impact of arrears, and that the mortgage remains affordable and sustainable. Overall, forbearance needs to minimise the risk of repossession.
This is why payment holidays are generally short-term. For customers who are already in arrears or in financial difficulty, lenders will consider the full range of options ordinarily available to customers under existing rules.
– What about customers who may need support longer term?
While the payment holiday is in effect, the capital sum of the loan remains as is, while the interest that would have been paid accrues.
At the end of the payment holiday period, the rules will re-apply. Lenders will get in touch with customers to assess their circumstances, including income and expenditure, and come to an arrangement with the customer to enable recovery through the full repayment of the arrears.
If the customer is in financial difficulty, lenders will come to an arrangement to recover the customer into a sustainable position on the mortgage. Any arrangements will aim to minimise the risk of repossession.
– How will a payment holiday affect my credit score?
Lenders have different approaches for reporting to credit reference agencies. Arrears that are accrued may be reported to the credit reference agency.
Firms will make efforts to ensure that forbearance offered under these circumstances will not result in an adverse impact on the customer’s credit score.
– What if I don’t own my property but rent instead?
Contact your landlord or managing agent if you have problems paying your rent. If you are a landlord and your tenants are unable to pay their rent you should contact your lender as soon as possible to discuss the options that may be open to you.
– What if I’m already in arrears?
You should continue to speak to your lender. Lenders will review existing arrangements if there is a change in circumstances.