One in nine UK mortgages are subject to a payment holiday due to the impact of coronavirus, UK Finance has revealed.
The number of mortgage payment holidays in place trebled in the two weeks between 25 March and 8 April, growing from 392,130 to 1,240,680.
Lenders announced they would support customers who were facing financial difficulties due to COVID-19 on 17 March.
Stephen Jones, chief executive of UK Finance, said: “Mortgage lenders have been working tirelessly to help homeowners get through this challenging period. The industry has pulled out all the stops in recent weeks to give an unprecedented number of customers a payment holiday, and we stand ready to help more over the coming months.
“We understand that the current crisis is having a significant impact on household finances for people across the country. Lenders have a number of options available to help, and payment holidays aren’t always the right solution for everyone.
“We would therefore encourage any mortgage customers concerned about their financial situation to check with their lender so they can find out more information on the support available and how to apply.”
For the average mortgage holder, the payment holiday amounts to £260 per month of suspended interest payments, while many can extend the scheme for up to three months.
Robin Fieth, chief executive of the Building Societies Association, said: “We know that this is a difficult time for many homeowners with a mortgage and building society staff have been working hard to offer individuals the right solution.
“For almost quarter of a million so far, that has been a three-month payment holiday offering a much needed breathing space to families whose household income is under severe pressure during the current crisis.”
UK Finance warned that a payment holiday may not be the right choice for everyone, and customers should only apply if they need one.
Those who want a payment holiday need to self-certify that their income has been either directly or indirectly impacted by the coronavirus.
Telephone lines are busy, so those who are concerned about making their mortgage payments are advised to firstly look at their lender’s website.
A number of lenders allow people to apply for a mortgage payment holiday using a form on their website.
Mortgage holders shouldn’t cancel their direct debits before a payment holiday has been agreed, as this will be counted as a missed payment and could impact their credit file.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Lenders should be applauded for enacting government policy within a relatively short period of time, particularly as it has been a big draw on their resources.
“The mortgage is typically most people’s biggest monthly outgoing. For someone with income or employment issues brought on by the pandemic, a payment holiday can be invaluable in covering short-term cashflow issues.
“However, borrowers should remember that this is not ‘free’ money. During the payment holiday, interest is added to the mortgage and will be owed afterwards.”
Others made similar warnings to borrowers.
Kate Davies, executive director of the Intermediary Mortgage Lenders Association (IMLA), said: “The expression ‘mortgage holiday’ sounds rather tempting and could be very helpful for homeowners who have suffered or anticipate suffering a loss of income during the current COVID-19 crisis.
“For some, it could be a lifeline, enabling them to defer payments until their finances improve.
“But there is a risk that some homeowners will confuse the idea of a ‘holiday’ with a ‘free period’ and believe (mistakenly) that the repayments which would normally be made during the ‘holiday’ will not have to be paid.
“The reality can be very different. Payments which are deferred will ultimately have to be made up over the lifetime of the mortgage. Interest will also be added – deferring now could lead to higher monthly repayments later on or even an extension of the mortgage term, meaning borrowers could be paying off their loan for longer.”
She added: “Borrowers should also beware taking action which could have a detrimental impact on their credit ratings.
“Any arrangement to take a mortgage holiday and defer payments must be agreed with the lender.
“There have been reports of some borrowers simply cancelling their direct debits – this can damage credit records and make it harder to secure finance in future.
“Put simply, a mortgage holiday is not intended to be an opportunity for homeowners to put their mortgage repayments on hold just because they can.”
This post has originally been featured in Property Wire.