Lenders granted mortgage holidays to 1.9m customers as a result of the Covid-19 pandemic since March 2020 and suspended all repossession activity on mortgage accounts. Usually, when you don't pay your mortgage for several months, the lender is able to apply to the courts to repossess your home. However, lenders can't do this until November at the earliest.
According to recent research, homeowners typically suspended payments of £755 per month on average and one in six mortgages were subject to payment deferrals. The stats also show that homeowners were ‘quick of the mark’ when it came to asking for support, with over 1.2 million of these deferrals being approved in the first three weeks of the scheme being opened in March 2020.
Online Mortgage Advisor is urging those who can afford to resume payments to do so and those that can’t urgently seek help.
What to do if you are having trouble paying your mortgage
Contact your lender first: If you've missed your mortgage repayments and have payments overdue, then you are 'in arrears'. Your first step should always be to contact your lender as they will want to help you to meet repayments. Your lender will be able to discuss your options with you and can offer suggestions, including temporary payment arrangements; lengthening the term of your mortgage, or switching temporarily to interest-only repayments.
Tailored help: Further tailored help for people struggling with their mortgage payments will be available from 1 November. However, this tailored help will appear on your credit file – unlike the mortgage payment holidays agreed by 31 October, which won’t appear on your credit file.
Know your rights: If you're struggling to meet repayments, don't have an MPPI policy or savings and aren't eligible for any state help, then you need to be aware of your repossession rights. A mortgage is a loan secured on your home so if you can't repay, the lender has a right to take your home instead. Repossession is when it puts this right into practice, by going to court and taking the house. Check if you can get legal aid to help with the cost.
Selling your home: It’s worth selling your home yourself as the lender will try to recover the debt from selling the property at auction. You'll probably get a higher price and you'll be in control. You can hold out for a good deal and may come out the other end with some cash. Also, you won't have a repossession registered against you, which will severely affect your chances of getting a mortgage in the future.
Get free advice: If you’re anxious about being unable to meet repayments, there are plenty of advice services which provide guidance for free. These include Shelter, National Debtline and StepChange Debt Charity.
Pete Mugleston, Managing Director of the Online Mortgage Advisor, commented: "There's no doubt that the pandemic has had a devastating impact on household finances for many and whilst we don’t know how many would have defaulted on their loans without the support from the Government and banks, many of the 1.9 million applying for payment breaks have found them essential in getting through tough periods of redundancy, or lower income.
"The problem is that those now looking to resume payments are facing increased job losses and further lockdowns across the country and may experience real financial hardship over the coming months. Even if a small proportion continue to fall behind on their mortgage repayments, it could be catastrophic. That said, it's certainly plausible that not all payment breaks were taken by those who actually struggled financially.
"In a move that would otherwise be considered as savvy financial planning, many with no impact to their income took breaks to anticipate something happening, rather than in response to it. They looked at the unprecedented unknown ahead of them and with the promise that payment breaks will not ‘impact credit score’, saw a sensible, low-risk way of retaining cash.
"The reality of this now reveals a problem that has always existed - the disparity between CRA credit scores and what lenders actually use to make their decisions.
"Scores these days are much more of a marketing tool than something used by lenders in new applications for credit. The details on a credit file are interpreted, analysed and assessed by each lender, so what can improve a ‘credit score’ is not necessarily what lenders will be happy with. Take payday loans for example. Good conduct of short-term credit boosts scores, but many lenders will decline a borrower who's had one in the last 12-24 months, as it looks like mismanagement of finances to need one in the first place.
"How lenders will now treat Covid 19 payment breaks in the medium term remains to be seen, but they know who took them. It's already a part of underwriter decisions now, and it may well become a bigger topic in the coming months, when many who took a break and didn't need it, come to refinance and get declined, despite having a perfect 999 score.”
