With the ongoing coronavirus situation, we are all stepping into unknown territory as far as our personal finances are concerned. No one could have predicted a crisis like the one we are facing. And for many of us, there is real worry about the possible financial impact of the the virus.
Taking out a mortgage is one of the biggest financial commitments many of us are likely to undertake. If you are concerned about your ability to make your monthly mortgage payments during the ongoing crisis, read on.
The government, financial regulators and lenders have all been putting measures in place to offer reassurances to homeowners at this difficult time.
This is a big one. The Financial Conduct Authority (FCA) has issued new guidance on how it expects mortgage lenders to treat customers fairly during the coronavirus (COVID-19) situation. One measure the FCA has recommended is mortgage payment holidays for those who need them.
A payment holiday is an agreement between you and your lender that you will not have to make mortgage payments for a set period of time. The guidelines at the moment suggest a period of three months.
It is important to understand a couple of things about payment holidays. Firstly, you will still owe the same amount on your mortgage. Secondly, interest will continue to be charged on the amount you owe during your payment holiday.
Basically, this means that once your payment holiday has finished, you will need to make up the missed payments. There are two ways of doing this: you could increase your monthly payments slightly or add a short extension to the term of your mortgage.
It is important to note that you shouldn’t apply for a mortgage payment holiday if you are not experiencing, or do not reasonably expect to experience any payment difficulties.
Borrowers can apply for a payment holiday whether or not they are already behind on their payments. However, according to the FCA, those who are already behind will need to discuss with their lender whether a payment holiday is the most appropriate measure for their financial difficulties.
For those who are up to date with their payments, there is no need to provide proof that their personal finances have been impacted by coronavirus. By submitting their application they’re confirming that their finances have been impacted.
Payment holidays are also available to buy-to-let landlords whose tenants have been financially affected by coronavirus.
The good news is that taking a payment holiday will not impact your credit score. However, if you think you are likely to miss a payment, it is a good idea to to contact your lender before this happens in order to arrange your payment holiday. Missed payments will show up on your credit report.
You will need to speak to your lender in order to apply for a payment holiday. If your bank or building society has the facility to do this online, this is probably the best approach. There have been reports of long wait times for those applying by phone.
As mentioned, as long as you are up to date with your payments, you will not have to provide proof of financial difficulty in order to apply.
Another piece of good news is that the FCA has also told banks and building societies that they must not repossess borrowers’ homes during the coronavirus crisis. The guidance says that this will apply irrespective of the stage of repossession – and lenders shouldn’t enforce any possession orders that have already been obtained.
However, you may choose to have your home repossessed if you believe it is best for you. If you have already made alternative accommodation plans, this may be an option you want to take. You would just need to contact your lender and discuss it with them.
At the time of writing, the Bank of England base rate has been cut to 0.1% – a record low. If you have a tracker or a variable rate mortgage, you will most likely benefit from this drop. It basically means your monthly mortgage repayments will be smaller.
However, if you are on a fixed-rate mortgage, you won’t feel any benefit in the rate cut just yet. Rates for new fixed-rate mortgages should be lower, so if you’re due to remortgage, you could get a cheaper deal. Alternatively, if you can get out of your existing mortgage deal without any financial penalties, you could explore the option of switching to a mortgage with a lower rate.