According to UK Finance, more than 1.2 million homeowners and landlords affected by Covid-19 are on ‘mortgage repayment holidays’. This will bring welcome to relief to workers who find themselves struggling at this time, but what are the longer-term implications?
In reality these are not really ‘holidays.’ If your lender or landlord agrees to reduce or suspend your monthly payments, it’s not ‘free money’. You will need to pay it back and whilst your payments are temporarily suspended, the interest will still accumulate if you have a mortgage.
This means your mortgage term will be extended and your payments will likely rise in the future. Or if you’re renting, a repayment schedule may need to be agreed with your landlord. So, in seeking some short-term relief during this crisis, you need to weigh up whether that might affect your longer-term financial wellbeing.
Many lenders have been pro-active and offer a quick and easy process to apply for a payment holiday. But don’t be tempted into thinking this is the most appropriate solution for you. The following points could help you make an informed decision and consider the long term impact.
Review your daily finances
Spending has changed for us all in recent weeks so take some time to review your current income and expenditure in detail. If you don’t have a surplus of funds or savings to tap into, perhaps a repayment holiday will help you through this critical time.
Investigate your options
The government has announced a whole range of measures to help people in this crisis. It’s worth checking whether you might be entitled to assistance. We’ve given you a couple of good options for support below.
Use emergency savings
The ability to cope with a financial shock is a key factor in financial wellbeing. Covid-19 is a classic example of such a shock, so if you have “rainy day” savings, consider dipping into these before applying for mortgage or rent repayment holidays.
If you are renting, speak with your landlord
Don’t simply expect your landlord to automatically pass on the benefits of mortgage holidays to you. Your rent covers all manner of other costs like insurances, health and safety compliance, maintenance and possibly agency fees.
The starting point is always to discuss your current situation with your landlord or letting agency without delay. Whilst government guidance to landlords encourages co-operation, rent levels agreed in your tenancy agreement remain legally due.
In addition to this support the Government has responded by ensuring that no renter who has lost income due to coronavirus, in either social or private accommodation, will be forced out of their home during this difficult time.
Homeowners – take some time to review your mortgage. If you’re not already tied in, it’s likely that you’ll save money by switching to a new deal and with interest rates at an all-time low, now is a good time.
Perhaps a mortgage adviser can help re-structure your debt to help reduce outgoings. And if you do re-mortgage to a new lender, you can still take a payment holiday, if required.
If you decide that a mortgage holiday is best for you, the process should be quite straight forward by visiting your lender’s website. But it’s also worth reflecting on possible alternatives first. A financial adviser or coach can provide further guidance and remember, support is available at no cost from providers like Citizens Advice and The Money Advice Service.
Additional Support Resources
Graham Wells is a guest contributor for the IFW and Founder of GroWiser Financial Coaching