Mortgage holidays: Call your bank before cancelling payments

Homeowners are unknowingly putting themselves into arrears by cancelling their mortgage payments without speaking to lenders first. 

Chancellor Rishi Sunak’s announced last week that homeowners in financial difficulty as a result of the coronavirus pandemic will be offered a three-month mortgage break, or ‘payment holiday’.

But lenders have warned that some borrowers are cancelling their direct debits without speaking to their bank or building society first.

Doing so will negatively impact their credit score, experts say, potentially making it impossible to remortgage in the future.

If you don’t tell your lender before cancelling your payments it will impact on your credit score 

Anyone who has already cancelled a mortgage direct debit without speaking to their lender first, is advised to call them as soon as possible to let them know.

On top of this situation, a huge influx of calls from families desperate to freeze their mortgage payments has left lenders struggling to cope.

One mortgage lender told This is Money: ‘We are seeing a huge spike in calls. The worry is that people can’t get through. Some are calls from people who don’t need it – it shouldn’t be a free for all. 

‘At the moment they’re clogging up the phone lines. To the extent that people need it they should do it – but think, “is this urgent?”’

Amid claims that borrowers are waiting up to 10 hours on the phone to speak to someone, many lenders are now asking borrowers to submit applications online to free up their helplines, or to only call if they are vulnerable or facing immediate difficulty.

But those who can’t get through who go on to simply cancel their payments without first speaking to their lender will be counted by credit referencing agencies as being in arrears.

This means they will struggle to remortgage in the future.

Nick Morrey, from broker John Charcol, said: ‘What they are doing is simply choosing to stop their mortgage payments, as payment holidays are authorised by your lender.’

And he added this warning: ‘No contact with them means no authorisation and therefore they will be classed as “missed payments” on your credit file, and that will prevent you from being able to remortgage with the vast majority of lenders in the UK.

’My advice is to look online at the lender’s website or talk to your lender as soon as you can if you think you are going to need to take a payment holiday. Please be patient with them as they have increased calls and reduced staff as well as most businesses.’

Credit referencing agency Equifax confirmed to This is Money that speaking to your lender first means you won’t be counted as being in arrears, if you then take the three-month holiday.

Chancellor Rishi Sunak announced anyone facing difficulty due to coronavirus will be eligible for a three month mortgage payment holiday

Chancellor Rishi Sunak announced anyone facing difficulty due to coronavirus will be eligible for a three month mortgage payment holiday

How a mortgage payment holiday can work

You should only take a mortgage payment holiday if you actually need to, as it could end up costing you more in the long run.  

At the moment, lenders are offering borrowers three ways to defer their mortgage payments.

Some borrowers will be able to extend their loan, effectively adding the extra three months onto the end of their term.

Mortgage broker John Charcol's Nick Morrey

Mortgage broker John Charcol’s Nick Morrey

Others are being offered the opportunity to increase the mortgage size but keep the same term length. 

This means that the mortgage will be paid off over the same period, but the borrower will be paying slightly more each month once payments start again.

Remember though, with both these options you will be paying interest on the sum accrued, meaning you’ll pay more interest overall. 

Another option that some lenders are offering is a shorter term repayment plan, giving the borrower the opportunity to pay the debt back sooner over a period of, for example, six months.

Take a note of the number, date and time, and the name of the person you speak to so you can 100% it’s not going to be recorded negatively 

Nick Morrey, of John Charcol

Not all lenders will be offering all borrowers all of these options. Speak to your lender to find out which one you might be able to take. 

Normally a payment holiday is granted on a case-by-case basis with financial hardship and general situational factors taken into account. Double check with your lender that taking one now because of coronavirus won’t prohibit you from asking for one in the future.  

Morrey added: ‘If I were calling my lender I would ask for all the terms and conditions to be explained to me so I understand exactly how it will work. 

‘But most of all take a note of the number you called, the date and time and the name of the person you speak to so you can 100 per cent confirm that the payments you were due to make are not going to be recorded negatively on your credit file. 

‘I have spoken to quite a few of the big lenders out there and they assure me that will not happen but these are unchartered waters for some lenders and procedures have been very hastily prepared – mistakes will happen. 

‘Should you need to complain at a later date then having evidence of the phone call will help your case to get the lender to rectify the records in your favour.’  

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