How will the three month coronavirus mortgage holiday work?

The three month coronavirus mortgage holiday announced by the Government is aimed at helping those in financial difficulty as a result of COVID-19.

Chancellor Rishi Sunak unveiled the measure on 17 March 2020 as the impact of the pandemic on the UK economy continues to grow.

He said: “I can announce that for those in difficulty due to COVID-19, mortgage lenders will offer at least a three-month mortgage holiday – so that people will not have to pay a penny towards their mortgage while they get back on their feet.

“This will give people the necessary time to recover.”

Here’s how it will work.

If I have a mortgage, will the scheme now kick in?

The coronavirus mortgage holiday is not automatic and won’t simply kick in for all mortgage customers.

Who is eligible for the coronavirus mortgage holiday?

Only those who are up to date with their mortgage payments and are genuinely impacted by COVID-19, will be considered for a payment holiday.

For those already in arrears or financial difficulty, lenders will consider existing payment relief – or ‘forbearance’ – options that are available to customers under ordinary circumstances.

UK Finance, the trade body representing the business and finance industry, says a ‘flexible approach’ will be applied when lenders are dealing with customers.

They will be looking to ‘tailor the best option’ for their customers as for some, a payment holiday ‘may not always be the most suitable approach.’

Am I eligible for the coronavirus mortgage holiday if I have a buy-to -let mortgage?

Yes you are – on 19 March the Government announced the scheme was being extended to landlords with buy-to-let mortgages as well as live-in homeowners.

How to apply for the coronavirus mortgage holiday

Customers affected by COVID 19, either directly or indirectly, should contact their lender as soon as possible to discuss whether a payment holiday might work for them.

Lenders would usually have to carry out a full assessment of a customer’s finances to establish what forbearance options would be the most appropriate.

According to UK Finance, “This is being waived to allow firms to implement a more straightforward process in an otherwise stressful time.”

Customers can still request lenders fully assess their finances if they wish.

How the coronavirus mortgage holiday will work in practice

Customers will not have to make any mortgage payments for three months under the coronavirus mortgage holiday, with the monthly payment amount switching to zero, but interest will still accrue during the period.

UK Finance is keen to stress this is not a measure suitable for those suffering a permanent reduction in income with, ‘little prospect of an improvement in the situation in the foreseeable future’.

The body said: “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.”

What will happen to your credit score?

Mortgage firms will ‘make efforts’ to ensure that customers who enter into the payment holiday will not have their credit scores adversely affected.

But any arrears that are accrued may be reported to credit reference agencies.

What about renters?

On 18 March the Government pledged to protect renters from eviction for the next three months as a result of the COVID-19 pandemic.

Emergency legislation is being brought forward preventing landlords from starting eviction proceedings during that period, the Ministry of Housing, Communities and Local Government announced.

What the property industry thinks of the coronavirus mortgage holiday

More detail is needed, according to some. Sam Harhat, of Andrews Property Group, said: “The Government’s backing of mortgage holidays of up to three months for struggling households is clearly welcome but, as ever, the devil is in the detail.

“If this is a smooth and seamless process that will enable homeowners to self-isolate without having to worry about their mortgage payments then clearly it is a significant move in the right direction.”

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After the Bank of England announced on 19 March a cut in the base rate of interest to 0.1 per cent, Simon Gammon, Managing Partner at Knight Frank Finance, commented: “The second cut to the Bank of England’s base rate in a matter of days means anybody on a tracker mortgage will see an immediate cut to their outgoings.

“In many cases it will gradually feed through to fixed rate products, but with lenders under financial pressure brought on by the spread of COVID-19, their approach is unlikely to be uniform.

“Activity in the mortgage market was already at a four year high before the first rate cut to 0.25 per cent. It’s likely this cut will underpin further activity in re-mortgaging.”

And the banking industry

Stephen Jones, UK Finance CEO, said: “Mortgage lenders will support customers who are experiencing issues with their finances as a result of COVID-19 and the options include a payment holiday of up to three months.

“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.”

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