Mortgage payment holidays were set to come to an end over the weekend, but they will now continue into next year. However, borrowers should tread carefully…
In light of the ongoing pandemic and its effects on property owners, the Financial Conduct Authority has announced a mortgage payment holiday extension. This means borrowers will continue to have the option of asking their lender for a payment break of up to six months.
The extension also applies to those who have already taken a payment pause. They will be able to request a further deferment to bring them to the six-month limit. Like before, the scheme is for those who are struggling with payments as a result of coronavirus. It is also open to both homeowners and landlords or investors with property loans.
As England prepares to lock down for a further four weeks, with many businesses closing, the extension could be a lifeline to many. Like furlough, the scheme was set to end on 31st October, but property owners can now take mortgage payment holidays well into next year.
Mortgage payment holidays: pros and cons
Taking a payment break means you are deferring payments to a later date. This will be for a period of time that you agree with your lender, and can help in times of financial hardship. Over the past seven months, millions of people have benefited from the scheme due to earnings losses.
For many who would otherwise have defaulted on payments, it means your credit rating stays in tact until a time when you can afford to start paying again.
However, there are some downsides. The main one is that you will owe more money in the long run. Missed payments are added onto your total mortgage, so it will take longer and cost more to clear this.
There is also a risk that it could affect future credit applications. It is possible that lenders could look at mortgage payment history when assessing any further borrowing requests in the future.
The advice from the FCA is that if you can afford to repay your mortgage, you should. There are also other options your lender could offer you, such as restructuring your mortgage. This could avoid accruing additional interest from taking a payment break.
Pausing payments on a buy-to-let mortgage
According to Steve Olejnik, managing director of Mortgages for Business, landlords in particular need to be aware of this. He believes landlords should only apply when it is unavoidable.
“Lenders expect landlords to be able to cover void periods under normal circumstances – where a property is empty, and a landlord isn’t getting any rent – so they won’t take kindly to landlords trying to take advantage of them just to build up some cash reserves.”
“One borrower with three live cases with their lender approached them for repayment holidays on another, existing loan. The lender immediately cancelled all three.”
He adds that landlords should think carefully before approaching their lender. This is particularly the case for those who will want to expand their portfolios in the future.
There are also other options available in the buy-to-let space. Many property investors take out buy-to-let mortgages on an interest-only basis. This makes the monthly payments much cheaper, as you are only paying interest on the loan rather than the capital. The borrower can then pay off the capital by the sale of the property, or by other means, at the end of the mortgage term.
