Aside from health, the main concerns of the UK population right now are about finances. With many having to deal with reduced working hours, being a furloughed or redundant worker, or living off statutory sick pay, managing an immediate drop in income will be a significant challenge.
Add to that, speculation from the media and incorrect information being shared by unqualified sources, it’s too easy for people seriously concerned about their money worries to grab onto snippets of information that give them a glimmer of hope.
As qualified financial advisers, we’re sharing this blog which is focusing on the popular topic of mortgage holidays.
Official announcement on mortgage holidays
The Government announced on 17 March that “Mortgage lenders have agreed they will support customers that are experiencing issues with their finances as a result of Covid-19, including through payment holidays of up to 3 months. This will give people the necessary time to recover and ensure they do not have to pay a penny towards their mortgage in the interim.”
This may seem a straightforward option to most, but there’s two key points you must take note of:
- Don’t assume that you are eligible for a mortgage holiday. Although the Government has made it policy for banks and lenders to offer mortgage holidays, it is not clear exactly who this will be made available to. You also need to consider whether this would be the right step to take in your situation.
- Contact your mortgage provider ASAP – if you do wish to be considered for a mortgage holiday, then you should contact your mortgage provider as soon as possible. Naturally, they will be experiencing high call volumes during this time, but they will give you the answers you need.
Alternatives to a mortgage holiday – what are they?
If taking a mortgage holiday isn’t in your best interests (or available to you) then these are some alternative ideas to consider:
- Agree to a lower repayment amount with your lender – rather than no repayments for a short period of time, paying a lesser amount may ease the pressure on your finances, allowing you to still contribute to paying off your mortgage. This will likely be a short-term agreement (like the mortgage holiday) but give you some breathing space to get your finances in order.Be aware – paying less now will impact your mortgage repayments in the long-term. It is likely that you will need to either extend your mortgage term once returning to standard repayment amounts OR increase your mortgage repayment amounts if not extending the term.
- Agree to extend the term of your mortgage with your lender – if you are able to, you could extend the term of your mortgage to spread your repayments over a longer period of time. This would then reduce your monthly repayments now.Be aware – extending your mortgage term will likely increase the total cost you repay. Depending on your age, you may also end up continuing to repay your mortgage into your retirement.
- Switch to an interest-only mortgage – your lender may have the option to switch you to an interest-only mortgage until your finances improve. This is a common option for borrowers at any point in time where they are struggling financially.Be aware – You may then have higher repayment amounts when returning to a repayment mortgage. Although your payments will be significantly reduced by switching to an interest only mortgage, you won’t be making any repayment on the money you’ve borrowed. This means you may not increase the equity in your property as this depends on the valuation and amount of lending secured on your home.
Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.
Seek qualified advice to make an informed decision
It’s important that borrowers do not make ill-informed decisions, especially when they may be experiencing increased bouts of anxiety and worry.
Our team can help you to look into alternative options such as remortgaging, equity release and other areas of financial protection. Find out more about our offer to help you find a better mortgage deal.
Call us today on 02380 920 128 or email [email protected]