Mortgages are a huge financial commitment and meeting the payments has become a tremendous worry to those whose incomes have been cut off or curtailed during the COVID-19 lockdown.
Getting the best mortgage rate is always important, but the ability to take a three month payment holiday first announced in March 2020 has been vital to many during the pandemic, and has seen 1.6 million payment breaks offered to homeowners, according to UK Finance. That’s one in seven UK mortgages currently subject to a payment holiday.
Now, the mortgage payment holidays (read more about them in our full guide) have been extended and homeowners who are coming to the end of theirs can ask for a further three months of a full or part payment holiday, the Financial Conduct Authority (FCA) has said.
The extension also gives those who haven’t taken a mortgage payment holiday up to now but are struggling to pay because of the pandemic until 31 October 2020 to apply.
The current ban on home repossessions is also extended until 31 October 2020.
But while this extension will be welcome to many, financial expert Martin Lewis has warned that interest continues to accumulate during a payment holiday. Speaking on his ITV programme The Martin Lewis Money Show, the MoneySavingExpert said, ‘interest racks up and it can impact your creditworthiness’.
The financial guru said on the show, ‘I don’t believe this should stop anyone who needs a mortgage holiday from getting one – if it’s crucial for cash flow, just do it.’
But he warned, ‘for those on the border, who may find it temporarily useful but can cope without it, add this to the fact that interest racks up during the payment holiday and I’d err on the side of caution’.
If you’re thinking of taking or extending a payment holiday, remember that you will still need to repay the full outstanding balance of your mortgage, which might mean spreading the cost of missed payments and extra interest out over future monthly payments for the remaining term, or increasing the mortgage term.
As for your creditworthiness, the FCA has said that payment holidays won’t show up as missed payments on credit files, but reminds homeowners that these aren’t the only source of information lenders use when they’re making a decision on lending.
Christopher Woolard, Interim Chief Executive, at the FCA, said, ‘It is important that if a consumer can afford to re-start mortgage payments, it is in their best interests to do so. Customers should talk to their firm about the best option available for them.’
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