The spread of Coronavirus in Scotland is having a major impact on all areas of our lives at the moment and is causing great uncertainty.
While our primary concern at this time is our health, our financial well-being is also of significant importance. These are unprecedented times and the Government has recently been implementing various measures to assist in alleviating the financial worries' that we might be faced with, one of which is the new government policy which allows borrowers to apply for a mortgage payment holiday of up to three months.
This is an official agreement with your mortgage lender which allows you to take a break from making any contractual mortgage payments.
Who can apply for the payment holiday?
The payment holiday is available to any borrower who is not in arrears with their mortgage payments and who have worries over their ability to meet their next mortgage repayment. You will need to give your lender details of your own individual circumstances including how your income has been affected by the Coronavirus situation for e.g. if your employment has been affected.
Borrowers who are in arrears with mortgage payments should make direct contact with their lender to discuss all potential options open to them.
This payment holiday is also accessible to Buy-to-Let landlords whose tenants have been financially affected by the Coronavirus outbreak.
Will I be subject to affordability tests by my lender?
In normal circumstances your lender would assess your finances however these are unusual circumstances and accordingly you will not be subject to the usual affordability tests by your lender. Lenders are enabling borrowers to self-certify that they have been affected either directly or indirectly by the Coronavirus outbreak.
How do I arrange a mortgage payment holiday?
If you wish to apply for a mortgage payment holiday then you should contact your lender at the earliest opportunity to discuss the options available to you. Many lenders have online information available about their requirements or alternatively you should contact them directly on their customer service contact numbers.
Will a mortgage payment holiday affect my credit rating?
There has been direction provided by the Trading Body UK Finance for banks and building societies and who have advised that lenders will make "every effort" to ensure payment holidays do not have an adverse effect on individual credit scores. Many lenders have advised that this will not have an impact on borrowers' credit rating. It is important, however, if you intend to apply for a mortgage payment holiday then you should check the position specifically with your lender to determine what their position is on this issue.
Will a mortgage payment holiday cost me more money?
If you opt for a payment holiday on your mortgage then you will still owe your lender the capital amount currently outstanding. Interest will still accrue over the period of the payment holiday and this will be added to the mortgage balance outstanding. Ultimately the effect here is that it will take you longer to repay your mortgage and will cost you more. So it is important to assess if a repayment holiday best suits your needs.
What will happen at the end of the mortgage payment holiday?
It is important to discuss with your lender the best way forward to deal with the outstanding payments at the outset. Your lender might spread the cost of the deferred payments over the reminder of your mortgage term. This will have the effect of increasing your monthly repayment costs. Further, the shorter your mortgage term left then the higher your monthly payments will be.
You should therefore consider whether you will be able to manage the higher costs before taking on a mortgage repayment holiday. Your lender might be willing to extend your mortgage terms and again this is a matter you should discuss with your lender.
Mortgage payment holidays are a good measure for easing the financial burden currently facing households during a period of economic uncertainty. Nevertheless, each borrower should consider their own personal circumstances to assess whether this is the best option for you and whether the extra cost will be manageable for you in the future. It would also be prudent for any borrower to contact their lender directly to ascertain if they have any other options available to alleviate any individual worries.
Get in touch
If this is something that you wish to explore further, please contact your usual Harper Macleod contact or call us on 0141 227 9409 and a member of the team will be happy to help.