What You Might Not Know About Mortgage Payment Holidays
Following the recent governmental announcement on March 17 2020, homeowners and landlords alike may be eligible for a three-month holiday from mortgage payments. This extraordinary measure was brought in to help those financially impacted by the global outbreak of COVID-19 (Coronavirus).
Since then, there has been much confusion surrounding who is eligible, how it all works and what this really means for landlords. We know on the face of it, it sounds straight forward – you will get a break from payments but there are lots of other factors to take into consideration, especially as a landlord, before applying.
We are always looking to protect our clients’ portfolio long term, so our mortgage experts have clubbed together to give you all of the facts to help you make up your mind.
What You Need To Consider
- Depending on which lender you are with, (not all lenders are backed by the government’s term funding scheme) you may be able to apply for a mortgage payment holiday for up to three months in total. There should be no fees to set this up and it essentially means that your monthly payments will be paused for this period. BUT and it is a big but, you will still have the pay these three months at a later stage. The mortgage payment holiday simply defers the payments, it doesn’t cancel them.
- If your current deal is fixed, taking a payment holiday now will delay your payments, but may end up pushing you over to your Standard Variable Rate where you’ll need to catch up and pay three months Standard Variable Rate which could be much higher than the rate you are currently paying, it may also extend the length of your mortgage. All important factors to consider before taking up the offer, especially where it will cost you more in the long run.
- Since your monthly payments are deferred, the amount of capital that you owe will remain the same but you will still accrue interest on the months that you are paused.
- When your three month period is over, your lender will contact you to arrange how you will repay the deferred payments, which could mean a longer mortgage term or even higher monthly payments.
- As it stands, the mortgage payment holidays are only valid up to a maximum of three months. After this period you will need to return to your monthly payments and you are only eligible to apply for this relief once. As none of us know when this pandemic will be over, it is important to consider when to use this benefit carefully.
- If you take a mortgage payment holiday as a landlord on your Buy to Let properties, the lender may only do so if the relief is passed onto your tenants. If you are facing rental voids it may be extremely useful but if all of your tenants are able to make their payments, it may be better to wait.
- To get the payment holiday your lender shouldn’t need to go through affordability tests with you or request any additional documentation. You’ll need to self-certify that your ability to make the payments has been impacted by the outbreak or if you are a landlord that you tenants’ income has been affected.
- Taking the mortgage payment holiday should not impair your future borrowing as a portfolio landlord, however many landlords have completed business plans outlining how robust the business is with contingency for rental voids, we appreciate the unprecedented nature of the current crisis, but landlords should take care only to request these holidays where absolutely necessary. If you are considering purchasing any sort of Buy to Let property in the future, it is currently unclear how lenders will treat this from an underwriting point of view in terms of the overall affordability of your portfolio. This is a key factor to consider as a landlord.
- A payment holiday shouldn’t impact your credit rating, provided that your lender reports the holiday correctly to various credit reference agencies.
What You Can Do Instead
Instead of taking a mortgage payment holiday there may be other options available to you that would ultimately save you more money and stress in the future. This could include a mortgage transfer to a better rate, a remortgage to create a slush fund or using any available liquid holding funds to meet any temporary shortfalls.
To discuss all of the options available to you in full, you can speak to one of our mortgage experts today by calling us on 08009499410 or by requesting a free callback below.