Warnings over extensions of mortgage and credit card payment holidays
Mortgage payment holidays were released by the government in March 2020 to help people who were financially impacted by COVID-19.
Since the beginning of March, around two million mortgage borrowers have taken advantage of up to three months payment breaks.
As well as this, members of the UK Finance trade association have offered 27 million interest-free overdraft buffers, provided 961,700 deferred payments on credit cards and 688,900 personal loan payments deferred.
In these cases, interest will more than likely continue to build during the deferred period or payment holiday, unless specified by the lender. Customers should carefully consider their options before accepting any such scheme and especially for further deferment.
On average, the payment deferral equates to £755 per month which is the amount of the suspended payment.
It is also suggested by UK Finance that 1 in 6 mortgages has been or is now subject to a payment holiday. This equates to over 1.9 million mortgage payment breaks.
As many borrowers now come to the end of the initial 3 month payment holiday period, lenders will be contacting them to make sure that they are still supported. Mortgage borrowers may now be offered further options which will include:
- Continued full or partial payment holidays
- Switch to interest-only temporarily
- Extend mortgage terms to reduce payments
It has been suggested that mortgage lenders are now able to offer further mortgage payment holidays until the end of October. The reason for the extended payment periods is to assist those still experiencing financial difficulties, such as those still on furlough.
Our advice to people who are considering extending their mortgage payment holiday, is to be very careful. These options have been put in place to assist people who really need it and not to simply ease the pressure for a few months.
Lenders are expected to be more rigorous with their checks on the extended payment holidays. Some will be offering debt counselling as well as other possible alternatives before accepting an application to extend.
You should also be aware that even though your credit rating will not be impacted, your options for future borrowing could reduce. Some lenders are taking a dim view on borrowers who have taken advantage of payment holidays for further borrowing or new mortgage applications.
If you want to know more about mortgages then you can contact our team of qualified iam|MORTGAGES experts on 01244 732899 or visit www.iammortgages.com.