Looking at Mortgage Payment Holidays? In these uncertain times following the chaos of Coronavirus, mortgage lenders can offer Mortgage Payment Holidays – a hold on repayments, giving you time to reassess your finances in the current climate. We spoke to Caroline Brunt, an independent mortgage broker, for advice.
Mortgages are tricky at the best of times, and it’s about knowing the right thing to do and the best time to do it. We need to use this time to plan; especially if you’re self-employed like many of Pedddle‘s stallholders, there are a difficult few months up ahead. Luckily, there are several things that can help significantly – including Mortgage Payment Holidays.
In our recent IG Live Q&A, Caroline explained more:
How do I organise a Mortgage Payment Holiday, and would you advise taking one?
Given recent news, lenders are inundated and are struggling to get back to people and answer phone lines, but most lenders have online forms and get back to you in a few days.
If you want to take a Mortgage Payment Holiday or break, the mortgage lender suspends your Direct Debit payments. A payment holiday will not affect your credit score, as long as you do it the right way.
DO NOT cancel your Direct Debit payments! You must speak to your lender, and they will suspend them. If you cancel your Direct Debit, this could affect your future credit rating.
It’s not advisable to cancel Direct Debits for anything, for this reason (including mortgages, utility bills and so on). Always speak directly to your lender first.
I’m self-employed – what do I need to apply for a mortgage?
As a self-employed person, tax returns are really useful to evidence your income, and you’ll likely have to provide 3 months’ worth of accounts information (bank account, joint account etc). This is for conduct and compliance purposes, more so than proof of income, and evidence that you are not laundering money, and are solvent (proving you have no bounced Direct Debits and have not previously gone into your overdraft, and so on). Your tax calculations will be used for up to 18 months, so your 18-19 taxable income can be used for affordability purposes right up until October 2020. Of course, if your 19-20 tax return is looking as though it will be more favourable, we can look to use this instead. You will usually need at least two tax returns, but there are some lenders who may consider taking one year only.
Is a mortgage payment holiday my best option?
Shop around – you could take a break from the mortgage you are currently paying, or it may be best for you to switch your mortgage deal or provider/lender.
Because interest rates are currently so low, there are some amazing deals around right now. You may be able to change your current mortgage for a better rate or at least have a better rate lined up for when you have come to the end of your payment holiday.
Please bear in mind that at the end of your payment holiday, your mortgage balance will have increased by 3 x your mortgage payment and a new mortgage payment will be calculated based on the higher balance over the rest of your mortgage term. If in doubt, ask for guidance.
Which lenders offer the best mortgage rates?
Some lenders are great at looking after their existing customers, but not all are. Most of the big lenders tend to treat their existing customers like their new customers, and treat them well. However, it’s always best to shop around. Often, your current provider can offer you a good deal as they want to keep you. As long as you do not want to make any changes to your existing mortgage balance or term, they are likely to waive an affordability and credit checks. By speaking to an expert, you can compare their offerings with those on the open market often on a no obligation/cost basis. This will give you reassurance that you have the best offer available to you.
What’s the difference between Standard Variable Rate, Tracker Mortgages and so on?
Standard Variable Rate is a lender’s base rate. Most lenders tend to offer between 3.5 – 5%. If you are currently paying a lenders standard base rate, you should definitely seek advice as there should be no reason to stay on this rate.
A Tracker follows the Bank of England base rate into account, and works a percentage above that. At present, the Bank of England rate is very low (around 0.1%), so for instance a Tracker may then work at 2% above that rate for 3 years – it always correlates to the Bank of England base rate. Some Tracker mortgages tie you in for the product period and some don’t.
Fixed Rate mortgages have been low for a while now and you can fix for up to 10 years although there has been some fixed rates available at times for 15 years and more. Fixed rates give you security and allow you to budget, but as with any rate, you take a risk that variable rates could go lower than the rate you have fixed at. Of course, the opposite could happen if you take a variable rate.
Every circumstance is unique based on future plans, both personal, financial and business, and so it’s important to take advice from a reputable professional who can look at your individual needs and compare all of your options.