Things to consider if you’re extending your mortgage repayment holiday
Homeowners who have taken mortgage payment holidays due to coronavirus can extend their payment breaks by a further three months, or start making reduced payments if they’re able to.
More than 1.8 million mortgage payment holidays have been taken so far by homeowners who have been financially impacted by the pandemic. The payment breaks were introduced in March, which means the first of them are due to finish in June.
Those who are still struggling to pay will be contacted by their lenders and offered a three-month extension to their payment holiday, along with other options, such as temporarily switching to an interest-only mortgage, or paying back a proportion of their monthly payments. Anyone who has yet to take a mortgage payment holiday will be able to do so until 31 October.
If you’re considering a mortgage payment holiday, or you’ve already taken one which you’re planning to extend, there are several things to consider first.
A payment holiday won’t affect your credit score, but it may be taken into account when you remortgage
Although taking a mortgage repayment holiday won’t affect your credit score, this doesn’t mean lenders won’t take it into account when you remortgage.
Some lenders may be more wary about accepting your mortgage application if you’ve had to take a break from payments in the past because you’ve experienced financial difficulties, so the sooner you’re able to get back on track the better.
Lenders will each have their own view on this, so it’s a good idea to seek advice from a mortgage broker about the best options for you.
The longer the mortgage break you take, the more your mortgage balance will increase
Taking a mortgage payment holiday may provide financial relief for a short period, but payments are only being deferred rather than written off.
This means when your payment holiday ends, your monthly payments will increase and be recalculated over your remaining mortgage term, so the longer the break you take, the more you’ll have to pay once your payments resume.
A spokesman for Halifax said: “Mortgage payment holidays can help with a temporary reduction in outgoings.
“However, your mortgage balance will increase and you will pay more over the term of your mortgage. So, it’s important that you only apply if you’re currently having difficulties making your mortgage payments.”
Some lenders have put additional measures in place to help customers affected by coronavirus
Check with your lender to see what other support they may be able to offer you if you’re struggling to pay your mortgage.
For example, Nationwide Building Society has said it will offer extended help to those affected by coronavirus, including the option for homeowners to make partial payments via temporary interest-only arrangements.
It has also promised that no-one with a Nationwide mortgage falling into arrears as a result of Covid-19 will lose their home in the next 12 months – until the end of May 2021 – as long as they work with the Society to get their finances back on track.
Santander and Nationwide, along with other lenders including Halifax and NatWest, have said that savings customers with money tied up in fixed rate saving accounts can access their money without penalty if it is needed to help them cover living costs, such as monthly mortgage payments.
Affordability criteria may have changed
If you take a payment holiday because your income has reduced, bear in mind that when you come to remortgage your lender will usually base the amount you can borrow on your new income.
For example, NatWest says that its affordability assessments will be based on the applicant’s new revised income whether it has changed permanently or temporarily, or if they are on the government’s Coronavirus Job Retention Scheme.
Nationwide will accept 80 per cent of income if a borrower has been furloughed, but won’t include bonuses, overtime or commission when assessing affordability.
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