May 01 2020

In March, Chancellor Rishi Sunak confirmed that anyone struggling financially as a result of the Coronavirus outbreak will be able to apply for a three-month mortgage payment holiday.

A number of lenders had already announced repayment holidays for those affected by Covid-19, but the Government's announcement means that all lenders have an obligation to honour the three-month time frame for residential and buy-to-let properties. This does not however, mean that mortgage payment holidays are suitable for everyone.

What is a mortgage payment holiday?

A mortgage payment holiday is an agreement you will need to make with your lender allowing you to temporarily stop or reduce your monthly mortgage repayments. Lenders have advised that anyone struggling with repayments should contact them directly.

The payment holiday will be available to borrowers who are up to date on their mortgage payments and not already in arrears.  If you believe that you will struggle to make repayments in the coming months, you may wish to engage with your lender as soon as practical to agree the best way forward.

Before contacting your lender, it is worth considering if it is absolutely necessary to take a mortgage holiday as your lender will not be writing off the debt. Interest will accrue for the period of the holiday and payments missed will be added to the loan and repaid in the future - potentially over the remaining term of the loan.

If you only have a few years left on your mortgage you could see a significant rise in your monthly costs if you were to take a payment holiday. The best thing to do is discuss your options with your lender so that you fully understand your circumstances and how the payment holiday would work for you.

Will my credit rate be affected?

If, following conversations with your lender, you decide that a mortgage holiday is right for you, the good news is that in normal circumstances deferring payments could negatively impact your credit score. The largest credit agencies in Britain – Experian, Equifax and TransUnion – have jointly agreed to a coronavirus “emergency payment freeze” and issued new guidance that protects credit reports during this time.

Should I cancel my direct debit?

What will impact your credit rating is simply cancelling your direct debit. While it may take longer than usual to get through to your provider, if you do want to take a mortgage payment holiday it is imperative that you speak to your provider and arrange this with them.

How can Fairstone help?

We are here to help. If you have any questions around either engaging your lender or more broadly around your protection policies or the wider impacts of the Coronavirus on your financial position, please do get in touch.

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For further information, please contact:
Andrea Barker
/ Tel. +44 (0) 191 519 6243