Mortgage payment holidays coming to an end – what are your options?

With mortgage payment holidays that were introduced to help those financially impacted by the Coronavirus pandemic starting to come to an end, we’ve taken a look at what options are available to consumers who have taken out a mortgage payment holiday.

Mortgage borrowers who have been financially impacted by the Coronavirus pandemic can apply to extend their mortgage repayment holiday. Applications can be made until 31 October 2020, but there is no guarantee that the mortgage lender has to accept the application. The payment holiday extension applies to those who have not yet requested a payment holiday, and new applicants also have until the end of October 2020 to apply. Those who want to apply for a mortgage repayment holiday should contact their mortgage provider as soon as possible to discuss their options.

Although a mortgage payment holiday provides mortgage borrowers with breathing room as they manage their finances during this time of economic uncertainty, those who are struggling financially should consider whether it is the best option for them. For example, if the borrower is able to make partial repayments or temporarily switch to interest-only repayments, these might be better options in the long-term. In addition to this, those who are able to return to full mortgage repayments are encouraged to do so as soon as they are financially able.

As interest continues to be accumulated on the mortgage debt during the payment holiday, the longer the payment holiday is taken out, the higher the repayments could be once the borrower returns to full repayments. It is for this reason that borrowers are encouraged to return to full repayments as soon as possible. Eleanor Williams, finance expert at Moneyfacts.co.uk, explained: “Borrowers returning to full monthly repayments after a three-month payment holiday could potentially see their monthly mortgage repayments increase by approximately £14.00* per month.” Alternatively, borrowers could choose to lengthen the term of their mortgage, which would reduce the new repayment but will mean that interest continues to be added for the longer length of the mortgage term. Borrowers returning to full repayments should speak to their lender to discuss their best options.

Although there are no fees involved with the three-month payment holiday being offered due to the Coronavirus pandemic, as already explained, borrowers should be aware that interest will continue to be added to their mortgage loan during the payment holiday.

The Financial Conduct Authority (FCA) has stated that payment holidays offered due to borrowers being impacted by the pandemic should not have a negative impact on their credit file. However, borrowers should be aware that credit files are not the only source of information lenders can use when assessing creditworthiness.

*Based on a balance of £150,000 over a 25 year term, on an initial rate of 2.52% (average two-year fixed mortgage rate January 2019), on the assumption that interest and monthly repayments during the payment holiday are recapitalised into the outstanding mortgage balance for the remaining term (not extended), and on the basis that payments will continue on the initial interest rate.