What happens when the mortgage payment holiday scheme ends?

1 in 6 people are estimated to currently be taking a mortgage holiday, but it is not a free holiday, and many people may not understand the true impact.  With the mortgage payment holiday scheme set to end on 31^st October, many homeowners will now be reassessing their finances – What will this mean for borrowers?

Mortgage payment holidays were one of the first measures the government introduced at the start of lockdown to help people manage borrowing costs during the pandemic.  While it was initially only meant to last for three months, the government then extended it to 31st October.

If needed, borrowers can still apply for a payment break or arrangement until the end of October but they will need to make alternative arrangements with their lender after this date.  The most important thing to note is that any payment plan set up after the end of the official government scheme could negatively impact the borrower’s credit score and rating.

What is the real cost of a mortgage payment holiday?

Taking a mortgage payment holiday means that a borrower defers mortgage payments for an agreed period of time.   Typically, the mortgage loan still continues to accrue interest during the holiday period, and the lender adds this on.  This means that, when mortgage payments recommence, they are likely to be higher than before over the same initial term of the loan.  How much extra it will cost will depend on the size of your mortgage, the interest rate, and how long you have left until your mortgage is paid off completely.   It’s important to remember that you will still owe the money and interest will continue to accrue while the deferred payments remain unpaid.

For this reason, many experts have urged people to only apply for the payment holiday scheme if they have no other option.  Payment holidays should be always short-term fix.

Another option for many buy-to-let landlords and property investors is to switch – either temporarily or permanently – to an interest-only mortgage which can significantly lower monthly payments without impacting credit.  The sale of the property at the end of the mortgage term pays off the outstanding balance.

Like all mortgage products, product availability and flexibility varies depending on personal circumstances and lenders therefore it is advisable to seek professional help from a mortgage broker.

The Financial Conduct Authority (FCA) is urging lenders and banks to offer further help to borrowers.  It has stated that it will monitor the sector to ensure there are options for those who are struggling.  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.”

So, how do you prepare? 

It is very important to seek professional mortgage advice to suit your personal circumstances and financial wellbeing.  Our mortgage experts then will trawl through the small print of a wide range of mortgage providers for you to recommend the best product to suit your requirements.

If you would like to find out more, we offer an initial appointment at no cost or obligation to explore the options and can be done in our offices in St. Marychurch in Torquay or we are happy to come to your home, or arrange a remote call via video such as Zoom or Skype.

Speaking to a professional mortgage adviser that works with many lenders is imperative.  For advice on the right mortgage to suit your personal circumstances, please contact the team at Howard Mortgages on 01803 554455 or contact us here.

If you’d like to read more about financial support during Covid-19 please visit our blog here >

Your home may be repossessed if you do not keep up repayments on your mortgage.