Do lenders treat payment holidays the same?
Following the Chancellor’s three-month repayment holiday announcement, it begs the question, do all lenders treat payment holidays the same?
Nick Morrey, product technical manager at John Charcol outlines the answer to that question – they do not.
The bottom line is that not all lenders treat payment holidays the same, and not all lenders even offered payment holidays until now.
Morrey believes the best advice for any borrower who thinks they may need to take a payment holiday is to call their lender and ask exactly how it would work in practice.
Morrey outlines that a payment holiday means the payments get rolled up on to the mortgage balance and then, when the payment holiday ends the mortgage is recalculated based on the new, higher outstanding balance over the remaining term.
This results in the balance being higher and the remaining term largely unchanged, and then the payments will be higher than before the payment holiday began.
Morrey said: “Advice to borrowers, and this is for all borrowers, not just residential but buy-to-let as well, is to contact your lender’s mortgage customer services and ask them to outline exactly how a payment holiday with them would work, how the missed payments will be recorded, and if the overall term will be extended by the same number of months as the payment holiday.”
James Chisnal, director at City Finance Brokers Ltd, believes that the announcement is “a fantastic and very welcome move by the Chancellor and providing clients credit files are not impacted in any way, this gesture will go a long way to helping people who are already concerned about the financial uncertainty ahead.”
Chisnal does outline that it is still “early days,” however he believes lenders will “get this right”.
Chisnal said: “It would be great also if landlords could take advantage on the proviso that they, in turn, give their tenants a three month holiday on their rental payments.
“This way, even more of the population would benefit and we can get through this with a much lower impact on the population’s finances.”
Sarah Tucker, founder at The Mortgage Mum, believes it is a comfort to know that mortgage lenders are able to offer our customers a three-month holiday on repayments.
She highlights that the announcement provides an extra layer of security and certainty at such an uncertain time, as well as assets financially unsettled households by avoiding an onslaught of adverse mortgage payments and extra stress at an already stressful time.
Similarly to Morrey, Tucker outlines that she is encouraging customers to consider this if they really need it and to speak to their lenders directly, ensuring this has no impact on their credit score.
Tucker said: “We are also ensuring customers understand that the interest will be accumulated into their future monthly payments.
“We’ll try to provide the extra layer of advice and reassurance for them as they contemplate their options.”