Pros and Cons of Mortgage Holidays
For homeowners, mortgage payments are usually their biggest outgoing. Given the importance of having a roof over our heads, it is also the most significant outgoing people have. In challenging financial times, mortgage holders should prioritise their mortgage payment.
Therefore, it is natural that during the current Coronavirus crisis, many people are concerned about managing mortgage payments. This is why the Government was swift to announce support for homeowners. It was announced that mortgage payment holidays of up to three months would be made available to those who required it.
Statement from the Building Societies Association
Usually, a lender would review a client’s finances before deciding which form of support is most pertinent for them. However, this process is being waived in the current climate. Firms have greater flexibility to place mortgage holders into an appropriate system.
Robin Fieth, Chief Executive of the Building Societies Association (BSA), said: “Lenders and borrowers face an unprecedented set of circumstances. People who would have been preparing and expecting to move house in the coming weeks now face a wait until COVID-19 restrictions can be lifted. Our hearts go out to them, and our heads are clear that it would be unfair for these people to have to start their mortgage application all over again once life returns to a more normal state. A three-month extension of existing mortgage offers seems a fair and reasonable step to take.”
Fieth continued by saying; “It is possible that some borrowers financial circumstances may change during the three months. If this happens, or the terms of the purchase change, we will work closely with the borrower to achieve a sensible outcome.”
The Pros and Cons of arranging a mortgage holiday
While knowing there is support on offer for people who need it is helpful, not everyone should take a mortgage holiday. There are Pros and Cons of a mortgage holiday, and each mortgage holder should consider their circumstances.
Pros of a mortgage holiday
- Not having to pay money now, which is vital if you are struggling because of the Coronavirus crisis
- You will give yourself breathing space, reducing stress and giving yourself time and space to consider your options
- The BSA says lenders will take steps to ensure clients don’t jeopardise their credit score by taking a mortgage holiday
Cons of a mortgage holiday
- A mortgage holiday is not free money, and it will need to be paid later
- Interest accrued at this time will be added to the payment, leading to higher monthly payments for borrowers
Mortgage holders must determine what impact, if any, a mortgage payment holiday will have on their payments, the length of their mortgage term, and whether it will appear on their credit file.
It is vital mortgage holders don’t stop making payments without arranging a holiday with their lender. Taking a mortgage holiday without agreement from a lender will cause the account to go into arrears, and this will hamper their credit file.
It is comforting to know there is support for homeowners during the Coronavirus crisis. However, just because a mortgage payment holiday is on offer doesn’t mean mortgage holders must take it. Review your options, and if you must, speak with a mortgage specialist to determine your position.