Revealed: 1.2million households have already taken a mortgage holiday – but experts warn some could struggle to remortgage as a result
- Some 1.2m households have taken a mortgage repayment holiday so far
- The vast majority of these will have been financially hit by coronavirus
- But experts warn these borrowers may be looked upon unfavourably in future
- Lenders have already started automatically declining remortgages for this group
- Learn more about how to help people impacted by COVID
Some banks and building societies may refuse to allow households financially hit by the coronavirus to remortgage, it has emerged.
More than a million homeowners have chosen to take a mortgage holiday as the impact of the pandemic on finances bites across the country.
The scheme, supported by the Government, lets borrowers take a three month ‘holiday’ from their monthly mortgage repayments.
But while the Government has promised these payment holidays won’t affect credit reports, it can’t stop lenders from refusing to lend to these borrowers in future.
Industry insiders claim that some lenders are automatically declining applications for those who have taken a payment holiday
And industry insiders have claimed that some lenders are already starting to automatically decline applications for those who have taken a payment holiday.
Chris Sykes from mortgage broker Private Finance said: ‘When the mortgage repayment holidays scheme was announced, the government stressed it would not have an adverse effect on borrowers’ credit reports. That remains the case.
‘But, if you require new finance in the next six months, in terms of a remortgage with a new lender, or going back to your existing lender, a repayment holiday will make your application less likely to be accepted.
He adds: ‘By requesting a payment holiday, essentially, you are announcing to your lender that you are in financial difficulty.
‘One lender has even told us, if a borrower has requested a payment holiday on an existing loan, any new cases will automatically be declined.
‘Be warned they won’t be alone.’
Some 1.2million households – or one in nine mortgage borrowers – have already taken payment holidays, according to figures released today from banking trade body UK Finance.
For the average mortgage holder, the payment holiday amounts to £260 per month of suspended interest payments.
The number of mortgage payment holidays in place more than tripled in the two weeks between 25 March and 8 April, growing from 392,130 to 1,240,680.
This is an increase of nearly 850,000 or an average of around 61,000 payment holidays being granted by lenders each day.
How a mortgage payment holiday can work
Cancelling your direct debit without telling your lender will affect your credit score
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.
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.
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.
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.
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.