To help those currently in financial difficulty as a result of the coronavirus pandemic, the UK government has agreed on a deal with lenders whereby the public can apply for a three-month mortgage holiday. 

The latest figures from UK Finance suggest that as many as 1 in 9 households have already applied for a mortgage holiday in order to temporarily reduce costs. If you’re currently considering joining them, here’s everything you need to know about the scheme, and some alternatives you may wish to explore. 

Eligibility 

All homeowners who are up to date with their mortgage repayments are eligible to apply to the scheme. 

If you’re currently in arrears with your mortgage payments, we would advise contacting your lender directly in order to discuss options. Even in the worst-case scenario, it’s worth noting that repossession of your home at the time is highly unlikely. The Financial Conduct Authority (FCA) has advised lenders that this course of action can only be taken if they can ‘demonstrate clearly that the customer has agreed it is in their best interest’.  

A three-month mortgage holiday is also available to those with a buy-to-let mortgage, although it’s expected that landlords are to pass on this relief to tenants, via a reduction in their rental payments, for the duration of the break. 

Are there any costs involved? 

The FCA has advised lenders not to charge customers any fees or costs in connection with granting a mortgage holiday. There will, however, be some costs later down the line. 

The capital you owe will not decrease and interest will accrue on your remaining balance. Ultimately, this means that either; it will take slightly longer for you to pay off your mortgage, or your monthly payments will be a little higher after the end of the holiday. 

Will it affect my credit score? 

No – the three credit rating agencies (Experian, Equifax, and TransUnion) have confirmed that credit ratings will be frozen for the duration of the mortgage holiday, so your ability to access credit in the future will not be affected. 

How to apply for a mortgage holiday 

The process to apply for a mortgage holiday is straightforward, the easiest way to do so being to visit the website of your own lender, where you’ll complete and submit a short form. You don’t need to submit any extra documentation, but you do need to self-certify that your income has been directly or indirectly affected by the current pandemic. 

Your lender will respond to your request within 3-5 days, confirming also the terms of your mortgage repayments following the end of the holiday. 

Alternatives to mortgage holidays 

Whilst the three-month mortgage holiday is a viable option to reduce costs in this period, it’s not the only one. If it’s not essential for you to put a hold on all mortgage payments, then you might consider the following: 

• Extending your mortgage term (thus reducing monthly repayments) 
• Transferring to an interest-only mortgage for a period 
• Deferring interest payments for a period, and continuing to repay the capital 

As always, individual financial situations will dictate what options are best suited to you. To make sure you’re taking the best course of action, we would always suggest speaking to a professional financial advisor. 

IMC Financial Services are committed to helping individuals and families navigate their way through the current coronavirus pandemic, from their remote offices. If you need advice on how to manage your mortgage, pension, or investments, get in contact with one of our expert financial advisors.