As COVID-19 continues to disrupt the global economy, governments across the world are coming up with innovative ways to deal with the slump.
Rishi Sunak announced that the banks have agreed to give up to six-month payment breaks to people affected by the pandemic. So far, almost one in five UK mortgage holders have been granted a payment holiday.
While a few mortgage holders struggled to get a holiday, others were able to claim it easily. And while this holiday will only add a few pounds to their monthly mortgage expenditure, others will have to get ready for an even heavier burden.
So, as a borrower, should you claim a mortgage holiday or not? We will help you analyse your options in this article.
Let’s Face It, A Mortgage Holiday Will Likely Translate To Higher Repayments
Although this temporary relief might sound like the best thing for the first time home buyer in the UK, it will increase your burden in all likelihood. Mortgage ‘holiday’ is not what it sounds, but payment deferment. This whole set up will merely pause your monthly installments for the holiday period.
This simply means that you will have to pay more each month after the ‘holiday’ ends while your mortgage term remains the same. Lenders will continue to charge interest during the moratorium period and this will further add to the amount you owe, thereby increasing the interest on the balance.
The result – you will have to pay higher when the holiday ends.
The Good News Is That Payment Holidays Will Not Affect Your Credit Ratings
So, we have seen people worrying if payment holidays will affect their credit ratings negatively? Thankfully, that’s not the case, as is stated by the FCA, government, lenders, and mortgage advisors.
However, we would like to mention that the credit reference agencies of the UK can only hold the data that contribute to your credit score. But these agencies cannot decide whether you can obtain credit or not. This is something that will be determined by your lender.
That is to say, if you wish to apply for any kind of credit a few years down the line, the fact that you applied for a payment holiday might limit your available options.
But What If You Are Unable To Pay Even When The Holiday Is Over
Admittedly, we all are going through tough times, both emotionally and financially. There are various individuals and families who might not be able to afford payments after the holiday.
The FCA have said that if you are unable to make your full payments due to the coronavirus pandemic even after the holiday, you may ask your lender to extend your moratorium period or provide further assistance.
Final Verdict: Yayy or Nayy?
Although the deadline for applying mortgage holiday is now extended to 31 October, you should avoid it if you can. It is highly recommended to explore alternative options and speaking to a mortgage advisor would be an excellent start.