Mortgage holders have been provided with a lot of support from the state in recent weeks. Income and employment can now be covered up to an extent by the government and mortgage payments can be delayed by up to three months.
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In March, the government agreed with mortgage lenders that they will offer repayment holidays of up to three months to households in financial difficulty.
The government detailed that the offer of these holidays can be made to customers who are up to date with their payments and they encouraged effective communication between lenders and holders.
While mortgage holidays are undoubtedly helpful they are not free of costs or downsides.
When discussing the mortgage holiday plans, lenders should detail what the increases in monthly repayments will be once the holiday ends.
As mortgage repayments will likely increase following the holiday, it may not be the best option for certain consumers.
However, lenders may be able to consider certain repayment plans that can keep the situation manageable.
Several organisations have published advice on mortgage holidays and how consumers can work with their lenders to come to agreements.
This advice can be sought directly from the government or other public bodies such as the Financial Conduct Authority or Citizens Advice.
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The Money Advice Service is another advisory organisation who have actually outlined some of the main repayment options. The first being:
Spreading deferred payments over the outstanding term of the mortgage
This will mean that homeowners will see an increase to their monthly mortgage repayments once the holiday period is over.
They explain that the shorter the term left on the mortgage, the larger the increase in monthly payments will be.
The higher mortgage repayments should be considered when planning future financial commitments.
Another option is:
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Increasing the length of the mortgage term
By extending the length of the mortgage, it is possible to see a smaller increase in monthly repayments.
On the flipside of this mortgage repayments will, obviously, last longer than expected.
As such, more interest will be paid over time for the remaining term of the mortgage.
The final option suggested concerns payment plans during the holiday itself:
Making interest or capital only payments
Some people may have the option of making interest only or capital only repayments during the holiday period. Doing this will reduce any increases in the monthly repayments compared to some other options once the holiday is over.
Despite this, the holder will still need to pay back any shortfall in their normal monthly repayments. Deciding what to do during this tough time will undoubtedly be difficult for many people.
However, it should be noted that steps have been taken to ensure people have the best information available. Lenders should provide all information related to mortgage repayments if the holder needs it for evaluation purposes.
On top of this, several free-to-use mortgage holiday calculators have popped up in recent weeks that aim to help people plan ahead.
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