For many home owners across the UK, the single biggest expenditure each month is their mortgage payment. Over the past few months, household budgets have been under increasing pressure due to the impact of the Covid-19 pandemic and monthly mortgage payments are likely to be one of the most concerning.
To help take the pressure off homeowners, a range of measures have been implemented by the government since March to support those who are in financial difficulty. This forms part of the government’s wider range of policies and aid packages introduced to help individuals and businesses.
Here’s a summary of how the government is assisting mortgage holders during these financially difficult times.
A 3 Month Mortgage Payment Holiday
In March, the government announced that there would be a provision for a 3-month mortgage payment holiday for homeowners that are struggling to pay as a result of the pandemic. This includes help for landlords whose tenants are in financial difficulties – to prevent landlords being forced to evict their tenants.
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Although lenders are not obliged to participate in the arrangement, the majority of banks and building societies have agreed to help their customers, as long as the customer first contacts the lender to make an agreement and to arrange a payment plan.
Once a mortgage payment holiday has been agreed and is in place, the mortgage holder will be able to miss up to 3 consecutive monthly payments. Those missing months would be added to the term of the mortgage or to the total outstanding debt which would mean higher monthly payments after the 3 month holiday period has ended.
A few points to be aware of:
- Homeowners will still be charged interest during the 3 month period and it will be added to the outstanding debt.
- Borrowers will need to be up to date with their mortgage payments to qualify for a payment holiday. Those already in arrears will need to discuss their situation further with their lender.
- Lenders cannot charge fees for payment holidays that are granted as a result of the pandemic.
- The government is encouraging landlords and tenants to work together to establish an affordable repayment plan after the 3 month period to take into account tenants’ individual circumstances.
An extension to the mortgage payment holiday (22 May)
The Financial Conduct Authority (FCA) announced proposals to extend mortgage payment holidays, making them available until 31 October. The following is being proposed:
- Mortgage holders who were already granted a 3 month payment holiday should be able to extend it to 31 October if they are unable to start making full or part mortgage payments after the first 3 months.
- The lender can deny the extended payment holiday and offer alternative help if they think it will put the borrower in financial difficulty.
- Mortgage holders who haven’t yet needed to apply for a payment holiday, can still do so if their position changes up until 31 October.
Lenders are not allowed to repossess homes during this time
The government has instructed lenders that they must not repossess homes during the Covid-19 crisis.
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In guidance to lenders, the FCA said: “Firms should not commence or continue repossession proceedings against customers at this time, given the unprecedented uncertainty and upheaval they face, and government advice on social distancing and self-isolation.
This applies irrespective of the stage that repossession proceedings have reached and to any step taken in pursuit of repossession. Where a possession order has already been obtained, firms should refrain from enforcing it.”
This has been extended to be relevant up until 31 October.
Council Tax
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To help both homeowners and tenants, some local authorities are offering to defer council tax payments by 2 or 3 months. The payments will instead be added to the total bill for the remainder of the year. People are advised to contact their council to discuss their particular circumstances.
Although deferring council tax payments does not help with mortgage commitments, it could help take the pressure off homeowners who would rather not take a mortgage payment holiday.
With a number of sound measures in place to help borrowers during the Covid-19 pandemic, homeowners can rest assured that they won’t lose their property due to repossession and that they can defer their monthly payments temporarily. It is, however, extremely important that homeowners speak with their lender before stopping payment and that they are transparent at all times.
