Towards the end of May the Treasury confirmed that mortgage payment holidays could be extended for a further three months. (1) Christopher Woolard, interim chief executive at the FCA, said: “The measures we have confirmed today will mean anyone who needs to can get help from their lender, if they are still struggling to pay their mortgage due to coronavirus”. He did however warn that It is important that if a consumer can afford to re-start mortgage payments, it is in their best interests to do so. Customers should talk to their firm about the best option available for them.(2)
While it may seem on first sight prudent to reduce your immediate outgoings in the wake of Covid-19, you may want to look at the implications of rolling another three months payments forward. While the three major credit reference agencies have confirmed that borrowers credit scores will be protected while they have agreed payment holidays in place (3) the fact that you will be adding to the size of your mortgage may mean that this will adversely affect your ability to borrow in future.
We talked about Mortgage stress tests in March 2019. In simple terms a mortgage stress test means that lenders are now required to try to establish the affordability of the mortgage for their customers. Stress testing measures and controls on the proportion of higher loan-to-income were part of a package of new measures introduced in the wake of the 2008 financial crisis. A lender will look at your current income and outgoings, particularly any long-term commitments, to confirm that you can afford the mortgage you are applying for. They will also try and predict the effect of interest rate rises. A lender wants to know that you can comfortably afford your monthly mortgage payments in the event of say a 3 percent rise in rates and also in a broad range of personal and national economic circumstances. As part of the process you will be asked about your utility bills, insurance premiums, council tax, debts, even your housekeeping bills. All these are considered committed expenditure – costs you must meet every month without fail.
There has been an increasing focus on stress tests as part of the mortgage application process since 2014, and with considerable economic uncertainty about the near future, lenders will be examining re-mortgage applications with this in mind. So, if your fixed term rate is nearing its end it may be worth taking advice before extending your payment holiday. If you are considering re-mortgaging we are available to discuss your personal situation by phone or now by Skype. The details can be found on our contact page.
A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
You may have to pay an early repayment charge to your existing lender if you re-mortgage.