Mortgage payment holiday: how the three-month coronavirus payment break works - and how renters are affected
Mortgage payers who are facing financial difficulty due to the ongoing health crisis are to be offered payment holidays of up to three months, the government has announced
Chancellor Rishi Sunak made the announcement on Tuesday 17 March as part of emergency measures designed to protect households amid the virus outbreak.
Three month reprieve on payments
A number of mortgage lenders have already announced repayment holidays for borrowers affected by coronavirus, but the government’s announcement on Tuesday (17 Mar) now means 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 mortgage costs “while they get back on their feet”, the Chancellor said.
The news comes after the Chancellor revealed the government is to offer £300 billion of government-backed loans to support businesses through the coronavirus pandemic.
The loans are equivalent to 15 per cent of GDP and include schemes for businesses in hospitality, retail and leisure sectors, such as airlines and airports.
Stephen Jones, UK Finance chief executive, said: "Monthly mortgage payments tend to be the largest outgoing for the vast majority of households and lenders are keen to reassure homeowners that the industry is working hard to put measures in place to support them during these uncertain times.
"Customers who are concerned about their current financial situation should get in touch with their lender at the earliest possible opportunity to discuss if this is a suitable option for them."
How will the mortgage holiday work?
In response to the government’s announcement, UK Finance, which represents financial firms, has outlined how the mortgage payment holiday will work.
The mortgage repayment is deferred for a period. The monthly payment changes to zero, and interest accrues for the period.
Where repayments are deferred for a time, the borrower will need to make up these repayments in the future, which could be over the remaining term.
Will everyone get an automatic three-month payment holiday?
Firms will help customers in the best way possible for the individual, so an automatic payment holiday may not always be the most suitable approach and may not be required by everyone.
Firms will be speaking to credit reference agencies to ensure consistent treatment of those customers to whom a repayment holiday is made available.
What if I don't own my property but I rent instead?
The Prime Minister has said that tenants will be protected from eviction during the coronavirus outbreak.
With quarantine measures and illness likely to force many people out of work in the coming weeks, new legislation is to be introduced to prevent this from leaving those unable to pay their rent homeless.
The emergency legislation will prevent landlords from beginning the proceedings to evict tenants for at least the next three months. This applies to both renters in social and private accommodation.“As a result of these measures, no renters in private or social accommodation needs to be concerned about the threat of eviction” the statement says.
The legislation is expected to pass through Westminster and be consented to by Holyrood within the coming week.
UK Finance has advised renters to contact their landlord or managing agent if they have problems paying your rent.
If you are a landlord and your tenants are unable to pay their rent you should contact your lender as soon as possible to discuss the options that may be open to you.
How do I apply for a payment holiday?
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.
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 process in an otherwise stressful time.
It is important that customers who believe they may be impacted, either directly or indirectly, contact their lender at the earliest possible opportunity to discuss if the payment holiday is a suitable option for them.
Is everyone eligible for a payment holiday?
The offer of a payment holiday can be made available to customers not already in arrears and up-to-date with payments.
Under Financial Conduct Authority (FCA) rules, lenders must ensure that any forbearance that is offered will enable borrowers to recover through full repayment of arrears.
Lenders must also minimise the long-term impact of arrears and ensure the mortgage remains affordable and sustainable.
Overall, forbearance needs to minimise the risk of repossession. This is why payment holidays are generally short-term.
For customers who are already in arrears or in financial difficulty, lenders will consider the full range of options ordinarily available to customers under existing rules.
What about people who may need support longer term?
While the payment holiday is in effect, the capital sum of the loan remains as is, while the interest that would have been paid accrues.
At the end of the payment holiday period, the rules will re-apply. Lenders will get in touch with customers to assess their circumstances, including income and expenditure, and come to an arrangement with the customer to enable recovery through the full repayment of the arrears.
If the customer is in financial difficulty, lenders will come to an arrangement to recover the customer into a sustainable position on the mortgage. Any arrangements will aim to minimise the risk of repossession.
What if I'm already in arrears?
You should continue to speak to your lender. Lenders will review existing arrangements if there is a change in circumstances.