UK INTEREST rates are at a 325-year low, at 0.1 percent. In normal times that’d mean super-cheap mortgages, yet we don’t live in normal times.
Lenders have toughened up their acceptance criteria, so rates are cheap, but tough to get. And many are struggling to pay, so the regulator has confirmed another three-month extension to mortgage payment holidays. All in all, there’s a lot to think about, but get it right and savings could be huge…
On 4 June, the regulator the Financial Conduct Authority’s new rules came into play that extend mortgage payment holidays. These do two things…
Mortgage holders who haven’t yet applied for a payment holiday have until 31 October. The application deadline was 20 June, but that’s been extended to 31 October. The ban on repossessions has been extended until this date too.
Mortgage holders already on a payment holiday should be able to extend it for a further three months. If you can’t start making payments on your mortgage once your initial deferral comes to an end, you can ask to extend it or have a partial payment holiday. If the lender thinks this would land you in financial difficulty, it’ll be able to deny the payment holiday but should offer other help.
A mortgage holiday only defers your payments. You still have to catch up later, and crucially interest still accrues during the payment holiday.
That means once you start repaying, you’ll pay more than you were.
For example, if your mortgage payments are £700/mth, and you’ve 20 years left on the term – take a full mortgage holiday and pay nothing for six months – then at the end of it your monthly payment is recalculated to include the missed payments and the interest accrued, over the remaining 19 years and six months, so you’d then pay roughly £725/mth.
Plus, when first announced a big play was made of the fact it won’t go on your credit file, that’s still true, but it can still affect your ability to get future credit.
I revealed this on my site after investigating a tip off in early May. Having then checked it out and discussed it with the regulator, it included it in its official extension announcement.
Lenders can look at open banking or your payment history to see you’ve had a payment holiday – what’s still open to question is how much it’ll impact your ability to get future deals.
So, if you’re really struggling with finances and need it, then do take a payment holiday. It helps cashflow and because if you ended up missing payments without agreeing a holiday it’ll destroy your ability to get a future cheap mortgage. Yet if you don’t need it, don’t do it – it’s not worth it, or at least minimise it, and get a partial repayment holiday.
1) Ask your existing lender what its best deals are. As you’re not switching between lenders, you may not need to pay costly fees – and it can set a benchmark for what to beat.
2) Use a whole of market comparison site to benchmark deals. Use one that includes all deals, including ‘direct only’, those that aren’t offered by a broker. These include my www.mse.me/mortgaebestbuys.
That also automatically factors in fees too – as the smaller your mortgage, the bigger the impact of fees.
3) Use a mortgage broker to finesse which is the best deal. What really counts is ‘what’s the cheapest mortgage I’ll be accepted for’. This includes affordability and credit scoring.
If you’re on furlough, expect them to use that as the income to calculate affordability.
Plus, sadly, if you’re in one of the industries which is harder hit, like hospitality or travel, again that can make things tough. Yet a good fee-free broker can help.
Martin Lewis is the Founder of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip