In this blog, Mortgage Adviser Mark Jones from J Finance explains all that’s involved with the recently announced Mortgage Holidays.
When Chancellor Rishi Sunak announced that lenders had agreed a 3-month mortgage break in his press conference at the end of March 2020, lenders had realistically, only just started to organise how they would be able to make this work.
Whilst some lenders already have systems in place, others are still to announce a formal policy let alone allowing mortgage holders to actually apply for a payment holiday.
Mark and the team at J Finance have compiled a list of the latest contact details for the top 20 lenders in the UK.
As with everything else linked to COVID-19, this guidance may change.
Mark shares his key considerations around the Mortgage payment holidays:
It’s important to remember that a mortgage holiday is a temporary break from your mortgage payments, to help you through these uncertain times.
If you don’t need it, you are better not taking a payment holiday or postponing until it really is necessary.
When your payments start again after the payment holiday, they will be recalculated and you may see an increase in your monthly payments, an extension of your mortgage term or a combination of both:
Key watch-outs if you are considering taking a mortgage holiday:
- The total amount of interest you will pay over the term of the mortgage will increase.
- Currently, most lenders will offer a maximum of a 3-month payment holiday.
The most appropriate time for you to take out a mortgage payment holiday will depend on your individual circumstances.
What if you were thinking of switching mortgage before taking a mortgage holiday:
- If you want to switch soon, you should switch before you request a payment holiday
- If you have an overpayment reserve, you could underpay your mortgage instead.
- Most lenders have confirmed that taking a payment holiday will not affect your Credit History. I would recommend that you request this in writing.
- Lenders will, in most cases, require your tax calculations (SA302) or company accounts to prove your income.
- Some lenders will allow these to be up to 18 months old if they are the latest years accounts, so we can use historical income figures to secure you a mortgage. If your business struggles in the next few months and your next set of accounts are not going to look very healthy, this could help you out.
- Most – some take the latest year only – lenders take an average of the last 2 years income for self employed. However ,if your latest figure is less than the previous year they will base all affordability on the most recent figures. This could have a big impact on your ability to borrow money if the next few months are difficult.
- We’d strongly recommend for you to remortgage before your next set of accounts are finalised.
Some quick maths for the self-employed
Use your current contract day rate if you are a contractor. Use CIS statements if you work in the construction industry.
Lenders will work out what you can afford by using:
Your contract day rate x 5 x 46 to calculate gross income and then not need to see your Tax calculations or company accounts.
What do I need if I’m paid via CIS?
If you are paid via the CIS scheme you will need 3 consecutive CIS statements if you have a good credit score. If you have a poor credit score you will need 12 consecutive statements.
If you are employed or a partner is employed and you are worried about your job or feel you might have to take unpaid leave, then we’d recommend you to remortgage now.
Lenders will work off your latest 1 or 3 payslips so gaps of unpaid leave will make remortgaging difficult.
Lenders require an income to remortgage so if you are made redundant your only option will be to stay on the lenders SVR (standard variable rate). These could be up to double your fixed rate or take a lenders retention rate (pot luck if they are competitive or not).
Remortgaging now is your best option.
How long are lenders offers valid for?
Most lenders’ offers when remortgaging are valid for 3 months.
Some offers are valid for up to 6 months, but not many.
Plan to remortgage 4 to 7 months before your current rate is due to finish. It will take a 4 to 6 weeks to arrange the mortgage with a bit of time management to drag it out if needed.
Some quick-fire facts for you
The Bank of England base rate reductions only reduce those base rate tracker mortgages immediately.
Not all tracker mortgages track the Bank of England base rate.
Check with your lender if your mortgage is a base rate tracker.
What can remortgaging pay for?
You can’t remortgage to pay tax bills with 99% of banks.
You can remortgage for home improvements and debt consolidation.
Lenders do not like to lend for tax bills and business purposes in general.
Just made a mortgage application?
Your rate will be honoured by the lenders.
The lenders will not take the rate away from you or make you change to a higher rate.
Hopefully this blog would have given you a good idea about what you need to do.
If you have any further questions you can contact me on 07595631458 or email me Mark@Jfinance.co.uk