How the mortgage payment holiday works and how homeowners can apply for it.
Homeowners impacted by the coronavirus will be able to take a mortgage payment holiday of up to three months.
The move, which was announced by Chancellor Rishi Sunak, is available to borrowers who get into financial difficulties as a result of the virus.
Stephen Jones, CEO of the mortgage trade body UK Finance, said: "Monthly mortgage payments tend to be the largest outgoing for the vast majority of households and lenders are keen to reassure homeowners that the industry is working hard to put measures in place to support them during these uncertain times."
How does the payment holiday work?
For people who need to take a mortgage payment holiday, repayments will be deferred for a period of up to three months.
During this time, you will not have to pay anything, but interest will continue to accrue and will be added to the total amount that you owe.
Their outstanding debt will also not reduce in the way that it would if you were still making repayments, and the missed payments will need to be made up at some point in the future.
As a result, the three-month holiday is most suitable if you are suffering a temporary drop in your income, rather than a long-term reduction in your earnings.
Who can use this mortgage break?
The option of taking a payment holiday is only available to homeowners who are up to date with their mortgages and are not already in arrears.
Other options will be made available if you have fallen behind with payments, but UK Finance stressed that any help offered must minimise the long-term impact of arrears and the risk that a borrower’s home would be repossessed.
How do you apply for the mortgage break?
Mortgage lenders have set up a fast-track system. If you are up to date with your mortgage repayments, you will be able to self-certify that you need help.
You need to contact your mortgage lender and tell them about your difficulties. You will not be expected to prove that your finances have suffered as a result of the virus.
In normal circumstances, lenders would carry out an assessment of your finances in order to identify the most suitable option, but this need has been waived.
UK Finance advises people who are experiencing difficulties or expect to do so, to contact their lender at the earliest possible opportunity to discuss their options.
Will it impact my credit score?
Getting into mortgage arrears would normally have a negative impact on your credit score.
But in light of the current exceptional circumstances, UK Finance has said lenders will make sure that borrowers’ credit scores are not affected.
What about renters?
While the support for homeowners has been welcomed, no similar measures to help renters have been announced to date.
Nor does the repayment holiday appear to extend to landlords with buy-to-let mortgages.
Instead, landlords who run into financial difficulties are advised to contact their lender to discuss the situation.
Top 3 takeaways
- Homeowners impacted by the Coronavirus will be able to take a mortgage payment holiday of up to three months
- Interest will continue to accrue during the period and will be added to the total amount owed
- Borrowers will be able to self-certify that they are having financial difficulties, and the payment holiday will not impact their credit score