The Impact of Taking a Payment Holiday
This is an excerpt from The Money Advice Service about mortgage holidays;
You can apply for a mortgage payment holiday of up to three months, where you take a temporary break from paying your mortgage
All well and good. But, there is an impact, the unintended consequence as it were.
The issue is that many borrowers have taken the option of a payment holiday. A large number of those have done so because it was an option, not because of necessity and this is why the impact will be felt.
Post Covid-19 Mortgages
As we start to tentatively come through the other side and look to establish some normality we are seeing lenders relaunch their mortgage products with revised criteria. One of those criteria we are seeing appear is about payment holidays.
For regular residential mortgages you should expect to see;
- Questions about payment holidays
- A moratorium between the end of a payment holiday and any new borrowing being sanctioned
This means if you have taken a payment holiday on any mortgage then you are unlikely to be able to obtain any new mortgage lending until 6 months of repayments have been made after the end of your holiday period.
Buy to let is similar.
Payment Holiday & Buy To Let Mortgages
The big concern among buy to let lenders is twofold. It is the valuation of property post-Covid-19 and the ability for tenants to pay rent.
For landlords who have taken payment holidays on buy to let borrowing then they need to be aware of how this will impact on their ability to borrow or refinance their portfolios.
We are starting to see;
- ‘No payment holidays taken’ as a condition of new buy to let lending
- A 6 month period of rentals being paid before new borrowing will be sanctioned
This means that the options for landlords when looking to refinance or make purchases will be reduced for those who have taken payment holidays. There is some common sense here, however for those landlords that took payment holidays to protect their cash rather than via necessity it may cause a problem.
Credit Reports & Payment Holidays
Another issue we have seen crop up and a recommendation follows. For any borrower who has taken a payment holiday, whether that be on a mortgage, loan, card or whatever, please obtain your latest credit report (this link tells you how).
Whilst lenders are, in the whole, showing payment holidays correctly, with the volume of agreed holidays then it is easy for things to be missed. Unless the lender properly updates their records there is a risk that a payment holiday shows as a missed payment on your credit report.
Please obtain your credit report and check (this link tells you what to check). Getting this amended is much easier to do now than in 6 months time when it incidentally comes to light.
I’m not saying don’t use payment holidays, just give it consideration as there is a consequence.
By Dave Farmer
