Covid-19 and your Mortgage Payment Holiday

Virus blog - Covid-19 and your Mortgage. 

When Chancellor Rishi Sunak announced that lenders had agreed a 3-month mortgage break during the No.10 Press Conference on Tuesday afternoon, lenders had only just started to organise how they would be able to make this work.

Whilst some lenders already have systems in place, others are still to announce a formal policy let alone allow mortgage holders to actually apply for a payment holiday. We have brought together the latest contact details for the top 20 lenders in the UK (click on link). As with everything else linked to COVID-19, this guidance may change.

https://www.jfinance.co.uk/wp-content/uploads/J-Finance-Mortgage-Holiday-Data-COVID19-20Mar20.pdf

Here are a few things to consider about Mortgage Payment Holidays:

 It’s important to remember that a mortgage holiday is a temporary break from your mortgage payments, to help you through these uncertain times. If you don’t need it, you are better not taking a payment holiday or postponing until it really is necessary.

 When your payments start again after the payment holiday, they will be recalculated and you may see an increase in your monthly payments, an extension of your mortgage term or a combination of both. 

·        - The total amount of interest you will pay over the term of the mortgage will increase.

·        - Currently, most lenders will only offer 3-month payment holidays.

The most appropriate time for you to take out a mortgage payment holiday will depend on your individual circumstances. 

You will not normally be able to switch your mortgage to an alternative product or repayment method whilst on a payment holiday. If you want to switch soon, you should switch before you request a payment holiday.

·        - If you have an overpayment reserve, you could underpay your mortgage instead. 

·        - Most lenders have confirmed that taking a payment holiday will not affect your Credit History. I would get this in writing.

Going Forward -

With all the uncertainty brings a lot of miss information and people make rash decisions. To help you understand what the implications may be for your mortgage I have written this blog to hopefully give you a better understanding of the current situation and give you a couple of handy tips. 

If you are self employed lenders generally require your tax calculations (SA302) or company accounts to prove income. Some lenders will allow these to be up to 18 months old if they are the latest years accounts, so we can use historical income figures to secure you a mortgage. This could be advantageous for you in the current climate if your business does struggle in the next few months and your next set of accounts are not going to look very healthy. Most (some take the latest year only) lenders take an average of the last 2 years income for self employed, however if your latest figure is less than the previous year they will base all affordability on the latest years figures. This could have a big impact on your ability to borrow enough money if the next few months are difficult trading times. To avoid this you will need to remortgage before your next set of account are finalised. You can use your current contract day rate if you are a contractor or CIS statements if you work in the construction industry to get around this. Lenders will use your contract day rate x 5 x 46 to calculate gross income and then not need to see your Tax calculations or company accounts. If you are paid via the CIS scheme you will need 3 consecutive CIS statements if you have a good credit score or 12 consecutive if you have a bad credit score. 

If you are employed or a partner is employed and you are worried about your job or feel you might have to take unpaid leave remortgage now. Lenders will work off your latest 1 or 3 payslips so gaps of unpaid leave will not help. Lenders require an income to remortgage so if you are made redundant your only option will be to stay on the lenders SVR (standard variable rate) these can be double your fixed rate or take a lenders retention rate (pot luck if they are competitive or not). Remortgaging now is your best option. 

Most lenders offers ( confirmation they will lend the required funds to you) when remortgaging are valid for 3 months. Some do offer valid for 6 months, but not many. This means you can remortgage 4 to 7 months before your current rate is due to finish. It will take a 4 to 6 weeks to arrange the mortgage with a bit of time management to drag it out if needed. 

Bank of England base rate reductions only reduce base rate tracker mortgages immediately. Not all tracker mortgages track the Bank of England base rate. Check with your lender if your mortgage is a base rate tracker. 

You can’t remortgage to pay tax bills with 99% of banks. You can remortgage for home improvements and debt consolidation but lenders do not like to lend for tax bills and business purposes in general. 

Just made a mortgage application? Your rate will be honoured by the lenders. Purchase or remortgage the lenders will not take the rate away from you or make you change to a higher rate. 

Hopefully this blog would have given you a good idea about what you need to do. If you have any further questions you can contact me on 07595631458 or email me [email protected]