The speed and severity of the coronavirus outbreak has left many businesses with no alternative but to shut down. The government has advised citizens to avoid public gatherings, and pubs, restaurants and some shops are closing their doors. Manufacturers facing a lack of buyers and broken supply chains are starting to do the same.
Many people are facing a significant loss of income. Some are unable to work due to the illness, but many more will struggle to maintain their earnings as the economy goes into shutdown.
But there is some good news. The Government has now announced that all homeowners will be able to claim a three-month break from their mortgage repayments if they are unable to pay because of coronavirus.
At Continuum we look at how a mortgage payment holiday during coronavirus crisis will work.
Three-month payment reprieve
Chancellor Rishi Sunak announced the government initiative on Tuesday 17th March as part of emergency measures designed to protect households amid the virus outbreak.
Monthly mortgage payments tend to be the largest outgoing for most households. The measures could help during these uncertain times.
A number of mortgage lenders have already announced repayment holidays for borrowers affected by coronavirus, but the government’s announcement means that all lenders will have to honour the three-month time frame. The measure comes in an effort to ease the financial burden for households, meaning borrowers will not have to pay anything towards mortgages “while they get back on their feet”, the Chancellor said.
How will the mortgage holiday work?
It has to be stressed that the mortgage payments are not being wiped out. Instead, they are simply being deferred for a period, currently seen as up to three months, which the government currently hopes will be the duration of the crisis. During this period, no monthly repayments need be made – but the important thing to realise is that interest continues to accrue.
Where repayments are deferred, the borrower will need to make up these repayments in the future, which could mean extending the remaining term.
Lenders are obliged to help customers in difficulties in the way that is most suitable for them. This means that an automatic payment holiday may not be available to everyone.
Many lenders have made payment holidays available to small numbers of borrowers who have fallen into temporary difficulties in the past. This was under Financial Conduct Authority (FCA) rules, which stipulated that procedures were in place to enable borrowers to recover through full repayment of arrears once short-term financial problems were solved. At the end of the payment holiday period, the standard mortgage arrangements will be applied, and the missing payments will need to be made up.
This process was designed to help people keep their homes – and to minimise the risk of repossession, which generally proves costly for lenders as well as a nightmare for borrowers.
The difference is that now government is requesting a rather more generous approach, and lenders will be expected to support thousands, rather than hundreds of customers.
Under usual circumstances, the lender would have to assess the customer’s finances and consider what options may be the most suitable. This is being waived to allow firms to implement a more straightforward and very much faster process.
Can you apply?
Lenders are offering customers who are up to date with their mortgage payments, and impacted by coronavirus, the ability to self-certify if they need help.
The offer of a payment holiday can be made available to customers not already in arrears and up to date with payments. If you are already in financial difficulty, lenders will consider the full range of options ordinarily available under existing rules.
There may also be help for landlords whose tenants are unable to pay their rents.
Do you need financial help now?
If you are having – or anticipating – financial problems as a result of the coronavirus crisis, it is important to get expert help without delay.
At Continuum we are ready to provide the help you need. We can help you look at your personal and financial circumstances and work with you to identify the steps you need to take to keep your head above water, and your financial planning on track.
We can discuss the impact of mortgage holidays, and the best way to deal with your other financial commitments.
Having a financial expert on your side has never been so important. Call us today.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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