How does the 3 month mortgage holiday work? We investigate..
As of today, homeowners and landlords can now apply for a three-month mortgage payment holiday by contacting their lender. The government’s new policy aims to ease the stresses facing borrowers during the coronavirus outbreak.
Payment holidays are available to any homeowners who are concerned about their ability to meet their mortgage repayments, for example due to a loss of work or other changes in their circumstances and you DO NOT have to have been diagnosed with the virus to qualify.
You will not need to undertake any means testing, you will need to self self-certify that your income has been affected.
You can phone your bank to speak to them about how to do this, however it is reported that the lines are incredibly busy and it may take several hours to get through to an agent. Therefore check out your mortgage lenders website first. Many lenders are allowing you to apply for the 3 month holiday via the website, often giving instant approval if you fit the criteria.
How does it work?
The scheme works like this. If you have a £700 mortgage, you will not pay this for 3 months. You will still be charged interest on your mortgage as normal.
So I get 3 months mortgage free? Yes and no... You won't pay your mortgage for 3 months, but you still need to pay it at some point! Nothing in life is free!
How will I pay? Most mortgage companies are not adding the 3 months to the end of your mortgage. So if you still have 6 years and 3 months left on your mortgage, at the end of the 3 months, you will now have 6 years left on your mortgage.
What the lenders are doing, is spreading the cost of what you would have paid, over the remaining months of your mortgage. So, as an example, your £700 a month mortgage, will increase per month, for the remainder of your mortgage duration, so in 4 months time, your mortgage may be £725 a month.
At the end of the 3 months, the mortgage company will contact you to discuss the mortgage, unless the government extends the scheme in the mean time.
You can speak to your lender, if you prefer not to go down this route, as the lender may offer you a different option, such as freezing interest perhaps. Every lender will have different approaches available.
It's worth noting that you are not guaranteed the 3 month holiday on your mortgage. Many factors may affect your application, especially if you already have defaults on your account, but if you are struggling, then do speak to your lender, they are dealing with all cases in a sympathetic and understanding manner and differently to how a lender would normally operate!
It's worth noting that a mortgage holiday SHOULD NOT show up on your credit file as a default. If it does then contact your lender to get this corrected as this is a government backed and devised scheme and as such should not affect your credit score.
DO NOT simply not pay your mortgage! This will be treated as a normal default and will affect your credit file and you could invoke legal action and potentially your house! Speak to your lender!
If you can, try and save as much of the saving from your mortgage as you can. This is not an excuse to buy yourself a new games console or update your wardrobe! If you can save the money to use as an emergency fund, should things become worse, then that is the most sensible approach. If you don't use it, you can then, if your lender allows, make an extra payment towards your mortgage and hopefully this will lower your monthly payments going forward.
Keep up to date with the latest Government advice in regards to finances and Coronavirus on the UK Government website here: https://www.gov.uk/coronavirus