Precautionary mortgage holiday - WWYD?

[DexyMidnight]

We have been considering applying for a mortgage holiday and weighing up the pros and cons.

Our incomes / jobs are holding up - for now - with neither of us furloughed. However we do have two properties that are let out and a mortgaged family home, and although our tenants are likewise coping ok for now on the job front, we are conscious our situation or theirs could change very quickly.

I appreciate mortgage holidays are not a new invention, but as far as I am aware banks normally require you to jump through hoops to apply, whereas the process is currently very easy and it seems to be a case of if you ask, you get. If banks get stricter on loan criteria in the future (which they surely will), I'm concerned there's a risk we wouldn't qualify.

For peace of mind I had therefore had in mind potentially applying for mortgage holidays across our properties and setting the funds aside so that IF we lost our jobs AND exhausted our savings AND there was any issue with our tenants's jobs we could keep the lights on for a further 3 months.

However, I've been told taking a mortgage holiday should be an absolute last resort, as, although it won't affect your credit rating (so they say, at least!), banks will likely still decline candidates who have taken a mortgage holiday. I.e. you wouldn't be rejected outright at the first hurdle, but it will come up as part of your application and a bank may decline to lend, or offer worse rates. In short, our options when it comes to remortgage will be limited.

I was shocked but in fairness, every time we have remortgaged we have been asked whether we have ever taken a mortgage holiday.

I am now torn between the extra peace of mind that 3 x 3 months' buffer would give us, and the risk of securing worse rates in future.

I'm not concerned about the increased mortgage payments going forward as our plan is to sell up in the UK in about 5 - 7 years anyway and relocate to my DH's home country.

Thoughts?

[FishOnPillows]

Prior to Covid, what was your contingency for either you losing your jobs or a tenant being unable to pay (or just moving out)?

I don’t know about now, but I had issues last summer with my exH and the mortgage. The bank told me that taking a ‘mortgage holiday’ still went down as a nil payment, and would still make life far more difficult for me to get a mortgage (especially one with a good rate) in the future. I ended up agreeing to change to interest-only for a few months instead - it drastically reduced the payments, while still keeping the account up to date. FWIW the bank were very helpful and said they always want to work with people to find solutions.

Also, you might want to find out how you’ll be paying those 3 months back. It’s often just added to the total and redistributed, so your monthly payments go up after the 3 months.

It just sounds to me like you’re wanting to not pay your mortgages for a few months in order to bolster your savings, which doesn’t make much sense to me.

[DexyMidnight]

Thanks Fish, yes this is what I was worried about.

Re contingency planning, well prior to COVID it was savings: we always keep 25k liquid in a short term access account for emergencies.

However i have to say we weren't forecasting for a situation in which we both lose our jobs, can't get new ones and both sets of tenants find themselves in the same situation all at the same time (or within months of each other)!

We could afford to pay 3 x mortgages, running costs (service charge etc) and meet our own essential expenses for about 4 - 5 months depending on how frugal we were, but as I said I was attracted to the idea of being able to keep the lights on a lighter longer if we have the perfect storm of calamities.

[DexyMidnight]

(To clarify, we could afford to pay the mortgages for 4 - 5 months with no rental income coming in). And I forgot also to thank you for the interest only suggestion, which I will look into.

[PinkiOcelot]

If you don’t actually need to take a mortgage holiday, then I wouldn’t.

[Couchpotato3]

Given that your income is holding up for now, and you have at least some savings, and there could be consequences for you with future mortgage applications, I think I would wait and see in your situation. If you really need to take a mortgage holiday in future, the option would still be there.

[Ifeel1000yearsold]

I took a mortgage holiday 12 years ago to extend maternity leave. It hasn’t affected my credit at all. If I had to do it again I think I would pay the interest rather than nothing.

[Namechangewhy]

No advice I’m afraid but watching the thread as I’m thinking along the same lines but just for my own property. Single parent and own business so I’m worried - I can pay everything now so don’t need the mortgage holiday, but I can now only forecast month to month at this stage and so want to be as best prepared as possible incase the shit really hits the fan.

[notalwaysalondoner]

Are you sure the bank won’t ask for evidence of furlough or redundancy? I find it hard to believe they’ll accept all this extra risk on their part when actually your incomes haven’t changed at all.

And bear in mind that you still have to repay those three months, so I’m not sure how skipping some payments now would help you overall if you lost your jobs in say 6 months as you’d have to make the extra payments anyway?

In taking on these mortgages you’ve always taken on the risk of having no tenants or losing your jobs - I appreciate it’s more likely now than in the past but the 2008 recession wasn’t long ago so it’s something that you should have weighed up as a possibility. I think to take a mortgage holiday when you don’t actually need it isn’t what they’re designed for and is actually taking the piss a bit. How would you like it if your tenants asked you for a rent holiday “just in case I maybe lose my job”?

[ECBC]

I agree with notalwaysalondoner

[Gustavo1]

Our income is under threat so we have taken a payment holiday. The money is going into a separate account (while we have it) to pay the first couple of payments after our holiday ends. Like you, we have approx 25k in savings but if employment is hard to find in recession, this could be eaten away quickly and every penny counts.

[ClaraEccles]

We’ve just remortgaged. I was talking to my broker about holidays (we are both still working so won’t apply for one)

He said given our income hasn’t changed, we wouldn’t be successful if we did apply for one.

Something to think about.

[FishOnPillows]

If you already have enough to pay everything for 4-5 months, I really wouldn’t in your situation. It could harm your ability to get other help in the future.

Plus it’ll likely increase your payments after the 3 months, assuming that’s the way your bank works. My monthly payments increased by 6% after my interest-only period, because that capital is still there, it’s just now spread out over the remaining term (much of this will depend on how long your term has left though).

When I called the bank, they went through my income and expenditure on the phone, so they could see I couldn’t pay the mortgage. They have to do this to ensure you can pay for any arrangement you agree to with them. So it’s quite possible they could turn down your application anyway, since you can still afford the mortgages, as nothing’s currently changed for you.

[DexyMidnight]

notalwaysalondoner yes i think it's fairly guaranteed at the moment (if you are not in arrears and have a clean track record). I appreciate what you say about it not sitting comfortably but the banks charge far more in interest on the deferred payments than it costs them, so I don't think it's equivalent to a tenant asking for a rent holiday. Just my own view of course.

Clara is that because you are required to 'self certify' and wouldn't be able to do so? Or was he suggesting evidence is required?

[Chosennone]

We applied online with our mortgage company. The small lrint makes it clear that as it is covid related it will not affect your credit rating. We did not have to show any proof of anything (husband is furloughed).

[DexyMidnight]

Chosennone it's not our credit rating I am concerned about though. The way it was explained to me is that you could have a credit rating of 999 and a 20% LTV but a bank might still reject you if you have had a mortgage holiday. Credit agencies don't decide whether a bank can lend, the bank does that. A bank could decline you because you had pink hair, they don't have to lend. It seems very unfair, and I hadn't appreciated this at all until it was pointed out to me. It was explained to me thus: if you come to me for a loan and you tell me that during COVID you needed a mortgage holiday that tells me that your financial situation is very precarious, because as soon as the proverbial hit the fan, you couldn't meet your liabilities.

In reality of course it depends if there is enough market for them to be choosy post COVID.

[Chosennone]

Ah I see.
I had a payment holiday on Mat leave and it didn't affect getting a mortgage 5 years later. I guess it depends on your personal plans for moving.

[Brightermornings]

I took a payment holiday. Still working full time my pay not affected. But I'm a single parent not much savings and asthmatic. Just wanted to know if I did get ill there was spare money to give me peace of mind.
Filled a form in on line didn't have to provide any financial info at all.

[MargotSimpson]

I’m with Halifax and they didn’t ask for any evidence when applying for our payment holiday.

[ButtWormHole]

We took the mortgage holiday, and as long as the budget allows we are putting it aside for a mortgage overpayment.

Yes it is costing us a little bit more in interest, but we just don’t know what the future holds.

[LJC1234]

Slightly similar in that me and my husband are also both still working and currently ok finance wise however I work In a commission based role which currently means no commission due to Covid19 . Commission makes up most of our monthly savings and I'm due to start mat leave in 5 weeks .

We decided to not take a full holiday from our mortgage but our mortgage company was offering the option of minimising payments for three months under the same scheme. We took the mortgage payments down to half to enable us to save the extra money we needed. We didn't have to jump through hoops it was literally three questions and then it was granted a few days later

[Standupthisisnotateaparty]

Are you sure the bank won’t ask for evidence of furlough or redundancy?

We weren’t asked anything other to confirm that we had been financially effected. A simple yes or no. Nothing was checked no figures etc. Call lasted mere minutes.

[chipsandgin]

The banks aren’t asking for any evidence & it’s unlikely that it will affect future mortgage applications as it will be attributed to the current situation not any personal issues. Better now as a precaution than attempted later if they tighten up the requirements IMO.

[zscaler]

If you have £25k of savings and your and your tenants’ jobs are currently secure then imo you would be absolutely mad to take a mortgage holiday and affect your future mortgage prospects.

[DexyMidnight]

I am not sure that is the case Chips, yes these are extraordinary times but at the end of the day it is not reassuring to a bank that if you lost your job you would immediately need a mortgage holiday. If you are living that 'hand to mouth' I am not sure that is a desirable loan candidate. We are fortunate that we do have a cushion but having applied for a mortgage holiday would suggest to the bank that we have no savings whatsoever to tide us over. I can see why it would make you a less attractive loan candidate, although I am also good at catastrophising and admit that having now debated this back and forth for some 6 weeks I have lost perspective a bit!

[Dinomom52]

It won’t affect your credit rating if you ask for one, but you might struggle to change onto a better rate/ask for further borrowing etc.

Asking for a payment holiday should be a last resort as you CAN’T pay. It’s a sign of financial distress. Obviously you can pay. The payment holidays were put into place for people who have lost their incomes. Not for people who want to give themselves a bit more of cushion.