Despite comfortable lifestyles, many homeowners might be facing large mortgages on primary residences or second properties. This can be difficult to manage when the economy hits particularly volatile periods.
In a bid to boost the economy, the Bank of England base rate was cut twice in March, from 0.75 to 0.25 per cent on 11 March and reduced again to 0.1 per cent on 19 March. Some (but not all) mortgage lenders have passed on these cuts to borrowers by reducing their standard variable rates.
To further ease ﬁnancial strain, the government announced a new policy allowing 3-month mortgage payment holidays. Homeowners and landlords can apply to defer payments but the detail and criteria does depend on your lender.
Some banks are restricting their payment holidays to those who can demonstrate they have been affected ‘ﬁnancially’ by the virus (rather than emotionally or socially). Most lenders have now removed the subjective element to this – so all a borrower has to do is declare they are affected ﬁnancially by the pandemic and they understand the consequences of a payment holiday. However, the process of applying for it still varies depending on the bank. Other lenders have payment holidays automatically built into their mortgage terms.
Lenders are not allowed to charge additional fees to set up the payment holiday. The scheme could also be useful for landlords whose tenants are unable to pay their rent.
The capital owed will not change but interest will continue to accrue so it may take longer and cost more to repay the mortgage. For this reason, it may be better to continue to make your current monthly repayments as normal if you can.
The best option for you will depend on your particular circumstances, the level of your repayments and the lender who supplies your mortgage.
There are a range of alternative options which may provide a better option which include:
- Extending the term of your mortgage by reducing monthly payments.
- Moving your mortgage to interest-only payments for a set period.
- Deferring your interest payments for a set period.
If you would like further information on anything mortgage or property related, please do not hesitate to contact Ade on ade.abiose@medicalfamilyﬁnance.co.uk or 020 7252 5765.