The intention of these measures is to assist mortgage borrowers in financial difficulty as a result of the COVID-19 crisis by:
- Enabling borrowers to take a mortgage holiday of up to three months without penalties; and
- Suspending evictions and eviction proceedings and actions for up to three months without penalties.
These measures apply to both owner-occupier borrowers, and landlords.
If a borrower is in financial difficulty as a result of the COVID-19 crisis, then they may qualify for a mortgage holiday for up to three months, under new provisions announced by the chancellor. A mortgage holiday offers flexibility and enables borrowers to stop or reduce their monthly payments.
Lenders are now offering a fast track approval process for borrowers, so they may have the reassurance of a decision being made quickly on their case.
There are certain conditions that must be met to qualify for the mortgage holiday, including:
- The borrower must be in financial difficulty due to COVID-19;
- Only borrowers who are up to date with their mortgage payments are eligible; and
- The mortgage holiday is not automatically offered to all borrowers. It will only be granted if the borrower requests it.
There are a number of key considerations which borrowers should consider before applying for a mortgage holiday:
- When payments are re-commenced at the end of the repayment holiday, they will be re-calculated, so borrowers may see increases in their monthly repayment. This is likely to mean that borrowers with shorter terms left on their mortgages could expect their monthly payments to go up more notably, and those with more time left can expect more modest increases;
- The total amount of interest over the mortgage may increase;
- Lenders may consider increasing the term of the mortgage to assist the borrower, but, as of yet, there is no obligation for lenders to do this; and
- The borrower may wish to consider alternatives to a repayment holiday. For example, if the borrower has an overpayment reserve, then they may be able to draw on this in order to reduce their mortgage payments temporarily.
As each borrower’s situation is unique, borrowers are encouraged to discuss their situation with their lender if the COVID-19 crisis is affecting, or is likely to affect them in order to establish what their lender can offer them to assist in this time.
There are additional protections for borrowers, designed to assist them, particularly with the payment holiday:
- Lenders also cannot charge fees or extra charges (other than additional interest) for payment holidays granted as a result of the COVID-19 crisis;
- Lenders must ensure that the borrower’s credit score will not be affected by taking the holiday; and
- Lenders must not repossess any borrowers’ homes (irrespective of whether they have taken a repayment holiday or not) within the three month period, or commence or continue with repossessions, unless the borrower has agreed with the lender that such an action is in the borrower’s best interests.
These are unprecedented rules in the sector and form part of a wider set of measures to support businesses and households in an uncertain and difficult time. It has been widely welcomed, particularly as mortgage repayments are typically the largest monthly outgoings for households.
These rules have not been implemented through legislation, and instead have been implemented through the FCA, by way of their updated guidance for lenders.
If you have any queries regarding your property portfolio and are concerned that Coronavirus may affect your property or property portfolio, please do get in touch with the Residential Property Team. Stone King is operating business as usual during this outbreak and can arrange for a virtual meeting if you require any advice.