Millions of Brits have faced losing their jobs or a reduction in pay as the coronavirus pandemic has forced businesses to take action. Some firms have been forced to close due to the nationwide lockdown, whilst others will have reduced working hours or laid off staff to minimise losses during uncertain times. For some, it may mean struggling to keep up with usual outgoings, such as mortgage repayments, but steps have been taken to offer support.
For many homeowners still paying their mortgage, it will be the single biggest expense faced each month. As a result, you may be worried about how you’ll pay your mortgage in the coming weeks and months. The good news is that if you’re struggling, there is help available.
Mortgage holidays
Chancellor Rishi Sunak announced a policy that aims to support homeowners, struggling to meet their mortgage repayments.
If you choose to, you can take a three-month mortgage holiday, putting repayments on hold in the short term. If your income has fallen as a result of the pandemic, a mortgage holiday can give you some time to get back on your feet. It’s a step that can relieve some of the pressure and anxiety you may be experiencing due to the current uncertainty around health and the economy.
It’s also worth noting that in addition to the ability to take a mortgage holiday, the Bank of England has cut its base interest rate. Two cuts in the space of a week in March means the base rate has fallen from 0.75% to 0.1%. If you’re paying a tracker or variable mortgage, this means the level of interest you pay will fall. If you haven’t already been contacted by your lender about this fall, you can get in touch with them directly. Whilst this doesn’t stop mortgage repayments, paying less interest can mean you have more income to focus on other areas.
If you have a fixed-rate mortgage, you will not benefit from the interest rate fall.
Is a mortgage holiday right for you?
A mortgage holiday can provide you with a few months of relief if your finances have been affected by the pandemic. But there are drawbacks to consider before you make a decision.
First, whilst repayments will be halted for several months and you don’t need to worry about arrangement fees or charges, interest will still accrue. You will still need to pay back the amount you owe now, as well as any unpaid interest. This means it may take longer to pay off your mortgage and cost more. Your lender should explain the impact of taking a mortgage holiday to you and confirm your monthly repayments and the term of your mortgage, you may then decide to:
- Spread the deferred payments over the outstanding term of your mortgage so that your mortgage length isn’t extended. How much this affects your future outgoings will depend on your regular mortgage payments and the amount of time left on your mortgage.
- Continue making the same mortgage repayments but extend the term of your mortgage. You may still see a small increase in your monthly repayments.
- Make interest-only payments during the mortgage holiday. This will reduce the increase in your monthly repayments as interest won’t be accruing, however, you will still need to pay back the shortfall in your monthly payments using one of the two above options.
As a result, a mortgage holiday should only be considered if you’re unable to meet financial commitments in the short term.
What help is there if you’re a landlord?
Landlords may also be able to apply for a mortgage holiday if their rented property isn’t owned outright if their tenant has been affected by coronavirus and can’t meet rent as a result. However, if you take advantage of a mortgage holiday on a Buy to Let property, you will be expected to pass this relief on to your tenant.
As with the traditional mortgage holidays, taking a repayment holiday on a Buy to Let mortgage may mean you pay more over a longer period.
Does support extend to other forms of borrowing?
Whilst the Chancellor hasn’t announced any measure on other forms of borrowing, such as credit cards or loans, many lenders are providing support. This may include repayment holidays. If you’re worried about keeping up with financial commitments as coronavirus continues to have an impact, contact lenders directly. They may be able to offer you some support, but this will be at their discretion. Reaching out before you miss a repayment can minimise the damage the current uncertainty has on your financial security now and in the future.
If you’d like to discuss your financial plan in light of the current circumstances, please get in touch. Our financial plans consider a range of scenarios, including your personal goals and periods of economic downturn, to provide you with confidence.