Mortgage payment holidays have been a lifeline for some of those who have been hit financially during the coronavirus crisis. And, with the Financial Conduct Authority (FCA) having created rules to extend this option until October 31, today, Martin Lewis highlighted some of the details which borrowers may want to note.
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Speaking on This Morning, Martin explained a payment holiday means that a person doesn’t need to make regular repayments during the agreed time.
That said, the interest and costs will still continue to add up – meaning the borrower would need to pay them back later.
“During coronavirus we’ve seen the regulator the FCA create rules that force banks to put in place certain payment holidays, upon request, for those struggling due to the financial knock on effects of coronavirus,” he said.
While payment holidays shouldn’t impact a credit score, there are ways that it can affect future credit applications, as Martin explained.
“For these payment holidays, or part payment holidays, which are allowed, you don’t need to make repayments, and any missed payments won’t be recorded on your credit file either.”
“Though that doesn’t mean it can’t impact future credit applications, as I revealed about six weeks ago lenders have ways (via open banking, application forms, and repayment history) to see if you’ve taken a holiday – and the FCA has confirmed they are allowed to do this.”
While a whole host of payment holidays have been announced in response to the coronavirus crisis, Martin went on to address mortgages in particular.
With mortgage payment holidays having been extended to October 31, it’s now possible for borrowers to extend their existing holiday should they need.
Alternatively, there’s still time for borrowers to apply for a mortgage payment holiday, should they decide it’s right for them.
Martin said: “Mortgage payment holidays have been extended until 31 October, meaning both that you can get it for the first time till then, and you can ask for an extension if your first mortgage payment holiday has ended.”
The financial journalist and campaigner went on to detail how taking the mortgage payment holiday would affect different borrowers.
“Let’s take someone on a £700 per month mortgage with 20 years to go,” he began.
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“When the holiday ends they’ll have 19 years and six months left to go, and will repay £725 per month – not a big hike and certainly worth doing if you need.”
However, those who are approaching the end of their mortgage term could see their monthly outgoings rise significantly after taking a payment holiday.
“Yet the higher the interest rate and the shorter time left (so less time to spread the cost) the bigger the cost jump,” said Martin.
“For someone with a £700 per month mortgage who only had 12 months to go, would be paying £1,415 per month for the remaining six months when their holiday ends.”
Martin, who is the founder of Money Saving Expert, has spoken on a whole host of financial matters relating to the coronavirus crisis.
Last week, he issued an urgent warning for people who are self-employed.
Speaking on The Martin Lewis Money show, he highlighted that the deadline to claim for the first Self-Employment Income Support Scheme (SEISS) is fast-approaching.
This particular deadline is on July 13, and so far, Martin said, only 2.6 million people out of the 3.5 million eligible had claimed the support.
This Morning airs weekdays on ITV from 10am.
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