With just under a week to go until coronavirus-related mortgage holiday application deadline of 31 October, there is still considerable confusion around the temporary measure introduced by the government and the Financial Conduct Authority back in June.
If you are a home owner and think you may benefit from the mortgage holiday, but aren't sure whether it's a good idea for you to take one, how do you make the decision either way? For one, there does appear to be discrepancy between what home owners were told – that a mortgage holiday would not impact their future mortgage prospects – and the reality, which is that some lenders are reportedly being reluctant to lend those who have taken a break.
Personal finance experts agree that taking a mortgage holiday is not risk-free and should be avoided if possible. Martin Lewis (opens in new tab) has said that 'if you don't really need a three month holiday, don't do it, or take a shorter break or make some voluntary repayments if you can.' The question for home owners remains: how do you know whether you really need one, and how do you balance the pros and cons?
Actually, there should be three questions you ask yourself whether deciding to apply for a mortgage payment holiday before the end of October.
1. Are you remortgaging any time soon?
If you're planning on remortgaging within the next year, we'd think long and hard about whether you want to take a mortgage holiday. The FCA have been clear in their guidance: while coronavirus-related mortgage holiday applications should not be recorded on your credit file, lenders still can access the information about any payment holidays from other sources.
Although most lenders should not take an issue with a mortgage holiday taken during Covid, so long as you've been making repayments since, some may. This is likely to be a temporary form of hyper vigilance, because lenders are doing everything they can to stem the tide of mortgage applications they're unable to process. So, if you really want to move house and/or apply for a new mortgage within the next six months to a year, we would avoid mortgage holidays if at all possible.
2. Is this your first or second application?
Not everyone knows this, but if you apply for a second three-month mortgage holiday on the same product, this will be recoded on your credit file, making future mortgage applications more difficult. So, if you are able to start making repayments again, do so. If you do end up needing to apply for a mortgage holiday in the future, you will still be able to do so. Mortgage holidays have always been available to those who need them; you should only worry about the current deadline if you haven't taken one yet since the start of the pandemic.
3. What are your income prospects for the foreseeable?
Of course, if you're suspecting you may not have a job in January, or are anticipating a significant reduction in income in several months' time, it makes much more sense to apply for a mortgage holiday now, while it's still not recorded on your credit file, than three months' down the line when it will. No one has a crystal ball about what their future circumstances will be, but if you have a strong reason to believe you will have difficulty making repayments soon, act now not later. Christopher Woolard, Interim Chief Executive at the FCA, said:
'Some consumers will continue to be impacted by coronavirus in the coming months, or be impacted for the first time. Consumers in these situations will benefit from firms providing them with tailored support.
'However, it is very important that consumers who can afford to resume mortgage payments should do so for their own long-term interests and so that help can be targeted at those most in need.'