2 November 2020

Mortgage payment deferrals extended during lockdown

The rules allowing borrowers to apply for a mortgage payment deferral were scheduled to stop at the end of October but with a new national lockdown on the way, the scheme has been extended. The Financial Conduct Authority has yet to finalise the rules but is suggesting that deferrals could be available for six months, to help those most struggling with their mortgage.

While we await the detail, it is encouraging to see such decisive action taken so quickly. Many borrowers will be worrying about paying their mortgage if they can’t work, and extending payment deferrals for a further six months will provide them with some comfort.

However, the advice remains the same – borrowers should only ask for a payment deferral if they really need one. Although they are often referred to as payment ‘holidays’ they are nothing like a holiday – the interest still racks up, and borrowers have more to pay off in the long run so the option should only be utilised by those who really need it.

Another problem with deferring your mortgage payments for several months is that the loan-to-value (LTV) could also rise. This is particularly the case if there is a corresponding fall in property prices, which some market forecasters are predicting will happen once the stamp duty holiday comes to an end in March. This will make it harder to remortgage if your LTV is already pretty high and may mean paying a higher rate of interest.

As always, seek advice before making any decisions about your mortgage.

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