The term ‘payment holiday’ in reference to what is actually a mortgage deferment runs the risk of misleading borrowers, according to Mark Harris, chief executive of mortgage broker SPF Private Clients.
UK Finance has released data showing that one in seven mortgage borrowers have now taken a payment holiday under the new initiative brought in by government to help homeowners cope with the financial strain caused by the COVID-19 crisis.
Commenting on this information, Harris said: “’Payment holiday’ is a misleading description for what is actually a payment deferment.
“Borrowers must understand that they still have to make up the shortfall when they can, plus interest, on top of their ‘usual’ payment once things get back to ’normal’.”
Harris went on to warn that the high number that have taken up the scheme may only be the tip of the iceberg as coronavirus continues to affect people’s financial situations.
He said: “With one in seven people taking advantage of the scheme, this demonstrates that many people have been hit hard by coronavirus.
“One suspects that the longer the lockdown and uncertainty continues, even more borrowers will be forced to ask for a payment holiday.
“The difficulty in getting through to lenders may have prevented others who would have taken advantage of the scheme from doing so by now.”
This high demand will naturally affect the workings of the industry, particularly considering lenders are having to adapt to a new system with regards to the payment holidays in the first place.
Harris said: “Many of the larger lenders are adapting to the demand for payment holidays by moving from a physical touch to a bot-led application form with borrowers self-certifying their need.
“This has led to processing times falling and applications being transacted more quickly, but may mean some borrowers are getting a payment holiday when it is not needed or the most suitable outcome.
“It is important to seek advice as to the best course of action.”