As of September 2020, many homeowners are still struggling to keep up with their mortgages due to job losses, furlough, or a reduction of income and were therefore hoping that the mortgage holiday would be extended.
However, the Financial Conduct Authority (FCA) has announced that mortgage holidays won't be extended past October 31, leaving many mortgage customers apprehensive about their financial situation and their property.
Can I still apply for a mortgage break?
If you’ve not taken a mortgage payment holiday yet, you have until 31 October 2020 to apply for one.
If you’ve already taken a payment break, you also have until 31 October 2020 to apply for another payment holiday or a partial payment holiday.
However, these options are temporary solutions and you’ll still have to pay back the outstanding amount at a later date, as well as any interest. In fact, taking a mortgage holiday is likely to result in higher mortgage repayments in the long run which is why they should be considered carefully.
Does taking a second mortgage payment holiday affect my credit?
Credit scores won’t be affected by mortgage holidays until the 31st of October, 2020.
So, although you can apply to your lender for a first or second mortgage payment holiday, your credit file could be negatively impacted if the date of your application exceeds this date.
The FCA have also provided guidance on payment breaks for credit agreements which includes credit cards and overdrafts, so taking a break or partial payment break from these can also impact your ability to apply for credit in the future too.
Why is it important to have a good credit score?
Whenever you apply for credit, whether that be a car on finance, a mortgage or a short-term loan, lenders look at your credit report using credit reference agencies like Clearscore or Equifax.
They look at your credit history to assess whether or not you’re a sensible borrower who repays their debts on time and in full.
If a lender sees that you had previously experienced financial difficulties i.e. by taking a mortgage break, they could determine that it wouldn’t be a good idea to loan you money.
Therefore, ideally, you want to avoid doing anything that could negatively impact your score as it could prevent you from borrowing in the future and can also affect the rates that future lenders offer you for loans.
What has the FCA advised lenders do for struggling mortgage customers?
To provide clarity, the FCA have provided guidance to mortgage lenders and UK banks for borrowers who continue to face payment difficulties and defer their mortgage repayments.
THe FCA have stated that, “Additional measures mean firms will offer further short and longer-term support reflecting the circumstances of their customers”
And that “struggling consumers will continue to receive 'individual' support and are able to take a first or second three-month payment deferral until October 31st”.
What qualifies for a struggling mortgage customer?
Every lender will have their own criteria that they will refer to when assessing the affordability of a customer, so while one may be more open to extending your repayment term another may decide that your current circumstances allow you to repay your arrears and therefore, may require you to make payment and begin clearing the debt.
If you feel that you’re not in a position to repay your mortgage arrears, speak to your lender and explain your situation so that they are aware and can advise you on how they can help.
Understandably, you may prefer to speak to a mortgage broker who may be able to manage the discussions on your behalf to find you the information you need as well as provide guidance as to how best to resolve the matter.
Will my property be repossessed if I can’t pay my mortgage?
Lenders in the UK are regulated by the Financial Conduct Authority and have a legal obligation to treat you fairly, come to an agreement about repayment for your arrears and only ever resort to repossession in extreme circumstances, when all reasonable attempts to resolve the situation have failed.
What does my lender have to provide me with before they can repossess my home?
Your bank or lender must provide you with:
A list of missed payments and the date they occurred
The total of the outstanding mortgage debt
The total amount of arrears and charges that you have accumulated
Written confirmation that they are starting repossession action
What are the alternatives to repossession?
If you’re struggling to pay your mortgage there may be alternative options that can help you reduce your repayments and avoid repossession.
Depending on your circumstances, you could:
Talk to your lender about delaying interest payments
Extend your mortgage term to reduce your monthly repayments
Switch your mortgage to a different lender with lower rates
Sell your property to clear your arrears and move into more affordable accommodation
However, before you delve into a new mortgage agreement or put your house on the market, it can be a good idea to get some proper advice.
Where can I go for advice about my mortgage?
Our advisors take the time to explain the pros and cons of each option, while calculating how that could affect your finances and your mortgage repayments.
This helps to clearly carve out the best route for your situation as everybody is different. Our brokers will listen to what you need from your mortgage and will provide confidential advice based on their experience and knowledge of the current market.
Call us or if you’d prefer, send us a message and we’ll get back to you as soon as possible with the help you need.