Many sectors have been hit hard by the coronavirus pandemic. Retail, travel and hospitality businesses have been forced to close in recent weeks, while companies in many other parts of the economy continue to struggle.
The pandemic has also impacted the housing market. Non-essential travel has meant that surveyors can’t value homes, while lenders have had to adapt to staff working remotely.
In addition, the coronavirus pandemic has left millions of people in the UK worrying about paying their monthly commitments, most notably their mortgage.
You may be asking: ‘What do I need to know about the coronavirus and my mortgage?’ Here’s your complete guide.
Base rate cut to a record low of 0.1%
To support the economy during the shutdown, the Bank of England has announced two emergency cuts to the Base rate in recent weeks. Since 10th March the cost of borrowing has fallen from 0.75% to 0.1%.
How this rate cut affects you depends on the type of mortgage you have:
- Fixed-rate mortgage – your repayments won’t change
- Tracker-rate mortgage – if your mortgage is linked to the Base rate then you should expect your interest rate and monthly repayments to fall
- Variable-rate mortgage – your mortgage repayments could fall depending on whether your lender chooses to pass on the base rate cut. Some major lenders including Santander and HSBC have reduced their Standard Variable Rate in line with the recent Base rate cuts.
Lenders offer three-month mortgage payment holidays
To support homeowners during the pandemic, the Chancellor has asked lenders to allow mortgage borrowers to take a three-month ‘payment holiday’.
The Financial Conduct Authority (FCA) say: “We expect lenders to offer payment holidays to borrowers who may experience payment difficulties as a result of the coronavirus.”
A payment holiday means you agree with your bank or building society that you will not have to make mortgage payments for, in this instance, up to three months.
You are eligible to apply for a payment holiday if:
- Your mortgage payments are up to date
- You have been financially impacted by coronavirus.
To apply for a mortgage payment holiday, you should first contact your lender. Try and do this in good time before your next monthly payment is due. Your lender shouldn’t need any evidence that your income has been affected by coronavirus.
The Financial Conduct Authority also say that their guidance ‘makes clear to firms that they should ensure that taking a payment holiday will not impact your credit score’.
You can apply for a payment holiday at any time during the three-month lockdown period, and your payment holiday will begin once it has been agreed with your lender.
If you are a landlord with a Buy to Let mortgage you can also take advantage of the mortgage payment holiday scheme if your tenants cannot pay due to financial difficulties caused by coronavirus.
Important: You will have to make up any payments you miss
It is important to remember that, if you take a mortgage payment holiday, you will still owe the payments that you miss. Interest will continue to be charged on the amount you owe.
This means that, at the end of the payment holiday, you will have to make up the missed payments. You can do this by:
- Slightly increasing your monthly payments
- Extending your mortgage term by a few months.
Rob Griffiths, director of the Mortgage Market Alliance, advises that you ask about the details of the arrangement when you speak to your lender.
Griffiths said: “This is not the lender paying the borrower’s mortgage for them for a three-month period but a deferment of these mortgage payments into the future.
“With that being the case, borrowers should get the detail of any such arrangement and use their mortgage adviser to provide an explanation of what this actually means for them, and to understand what (if any) other options might be available.”
House purchases put on hold
If you are in the process of buying a house, the government has said to delay sales ‘as far as possible’, although you don’t have to pull out of the transaction altogether.
If you have yet to exchange contracts, you should consider putting the deal on hold unless you are buying a vacant property (for example, a new-build) in which case you can continue with the transaction.
If you have exchanged contracts and therefore legally obliged to complete the purchase, you must follow social distancing guidelines during the transaction. Speak to your solicitor and all parties involved in the sale, including the buyer or seller, and agree on a completion date after the lockdown measures are lifted.
Mortgage lenders are also working to extend offers for up to three months for buyers who have exchanged.
Remortgage products still available
While house purchases have essentially been put on hold, there are plenty of remortgage deals available.
If you’re coming to the end of a fixed or tracker rate deal and you want to secure a better interest rate, most lenders are still offering remortgage deals – but it will depend on how much equity is in your home.
If you want to borrow less than 75% of the value of your home, then a lender may be able to use an Automated Valuation Model (AVM) to estimate the value of homes. This can make the process more efficient as it avoids the need for a surveyor visit to the property.
Lenders temporarily stop repossessions
During this period of economic uncertainty, the government has also announced that lenders will be expected to stop repossession action.
This applies to all mortgage borrowers at risk of repossession, whether or not their income is affected by coronavirus.