Mortgage holiday: Homeowners warned against payment freezes - £1.8k may be added to bills
Mortgage holidays have kept many homeowners afloat this year as coronavirus decimated incomes and employment across the UK. While being crucial for many people, the payment freezes were not free of criticism and new warnings on utilising them have emerged.
According to a recent analysis, around two million UK homeowners have been granted a mortgage holiday since their introduction.
This has been welcomed by many as coronavirus took its toll on the economy, with furlough and unemployment rates skyrocketing.
However, several experts, including Martin Lewis, have stepped forward in recent months to warn they should only be used when desperately needed.
This is due to some of the long term costs associated with utilising a pause, such as the fact that interest on the repayments will still accrue during the break.
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Additionally, First Mortgage warned the payment holidays “can’t last forever” and homeowners should remember that just because their payments are temporarily frozen, it doesn’t mean the overall mortgage deadline changes.
The repayments may still have to be made in the same timeframe, hiking up monthly repayments, interest and stress levels.
Repayment plans will of course differ hugely, but after a six-month mortgage holiday an additional £1331 could be added to the total amount owed according to First Mortgage’s analysis.
The company provided the following example for illustrative purposes: “For example, on an average £150,000 outstanding mortgage with 20 years left and an interest rate of 3.2 percent, your total repayment amount would increase by £900 by the end of a three-month holiday, jumping up to £1801 by the end of a six-month holiday.
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“This would lead to an increase of £29 per month in mortgage payments. “
Lynne Paterson, the Head of Telephony, commented on this unfortunate reality: “We have all felt the pressure this year, and mortgage holidays are one way many of us have turned to in order to relieve some of that pressure.
“However, this is a short-term fix. In the long term, this could cause further and more intense problems for you.
“Your repayments may still have to be made in the same time frame, both capital and interest, which could amount to thousands on top of your initial repayment.
“If you find yourself in a sticky spot, speak to a mortgage advisor, speak to your lender and speak to your bank before making any long-term decisions.”
Sheldon Mills, the interim Executive Director of Strategy and Competition at the FCA, welcomed the extension with following comments: “Today we have confirmed further support for borrowers struggling financially as a result of coronavirus.
“The announcement we have made today ensures that the support offered through payment deferrals is as flexible and accessible as possible.
“This means borrowers will again be able to access payment deferrals up to a maximum of six months.
“However, if you are able to keep paying it will be in your best long-term interest to do so. Payment deferrals should only be taken when absolutely necessary.”
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