In this article discuss the effects of Covid-19 and mortgage payment holidays.
A brief reflection on the government’s response to the pandemic for the buy-to-let mortgage industry.
A mortgage payment holiday is a scheme that provides a temporary break from paying your
monthly mortgage. On18 th March 2020, the UK government implemented that lenders allow existing borrowers to take these holidays for a period of up to a maximum of 3 months.
There are some criteria that borrowers must qualify if they are to be granted a mortgage
payment holiday. The two main criteria being that all mortgage payments have been up-to-
date and that all landlords have tenants being adversely affected by Covid-19 through lost
According to UK Finance, 1,240,680 mortgage payment holidays were granted as of 8th April 2020 to those households who haven’t been affected by the coronavirus pandemic. This is inclusive of both buy-to-let and residential mortgages. By 24 th April, over 1.6 million
mortgage payment holidays were granted. 1 This accounts to roughly 1 in 7 total mortgages
around the UK. These are record numbers never seen before in history, emphasising the
impact the pandemic is having on the mortgage industry nationwide.
For buy-to-let mortgaged properties, the payment holidays were introduced because many
renters were beginning to struggle paying their rent from the effects of the Covid-19
lockdown. An increasing number of landlords were facing tenants who were unable to meet
their rent payments, whether that be completely or partially. Some landlords rely solely on
rent as their main source of income, which meant keeping up with mortgage payments
without a cashflow of rent made their lives particularly hard.
In a statement, Housing Minister Robert Jenrick said that the mortgage payment holiday
scheme applying to the buy-to-let industry will "alleviate the pressure on landlords, who will be concerned about meeting mortgage payments themselves, and will mean no
unnecessary pressure is put on their tenants as a result. At the end of this period, landlords
and tenants will be expected to work together to establish an affordable repayment plan,
taking into account tenants’ individual circumstances.”
Many buy-to-let lenders (including specialist ones such as Precise Mortgages and Fleet) only
require self-certification from the landlord that their tenants are struggling to make
payments of their rent due to lost income, thereby granting the mortgage payment holiday efficiently.
From 19th March 2020, lenders have also agreed with the Government that no
homes will be repossessed during this unprecedented and difficult time.
A holiday you still have to pay for.
The term “mortgage payment holiday” has been thrown around a lot and can easily be
misinterpreted with the word ‘holiday.’ The more accurate term could be described as a
mortgage payment ‘deferral.’
Although you will be exempt from paying your mortgage for 1 to 3 months, you would still
need to pay back the interest on those months you were exempt from which will be added
onto your total mortgage balance after you have come out of your holiday period.
Therefore it is not a complete break from payments. You have to make up for the shortfall
of missed payments afterwards via an increase in monthly mortgage payments later.
The lender will recalculate your mortgage payments when you come out of your payment
holiday period, taking the increase in mortgage balance into account. If you have taken up
the mortgage holiday scheme, your lender will confirm to you exactly how much you are
expected to pay and the total amount you owe when you come out of your break. The same
principle applies to residential mortgages.
If I took a mortgage payment holiday, will this affect my ability to borrow in the future?
One of the most important questions that have arisen from this scheme is if whether taking
a mortgage payment holiday would impact their ability to borrow in the future. It is still too
early to say and lenders have not yet confirmed how they will treat new applications
whereby applicants have taken mortgage payment holidays.
On 14th May 2020 during a webinar on a COVID-19 Series with the National Residential
Landlords Association, Doug Hall, Director of mortgage distributor 3mc, had suggested that
some lenders may likely to begin asking extra questions and requiring extra paperwork from
landlords to see how they would be sustaining their portfolio in the future, such as via
asking for a business plan. Furthermore, that underwriters may take extra due diligence to
see how they have been handling their finances and their situation during the pandemic.
You can expect most brokers to be capturing more information in regards to how applicants
have been coping during the lockdown period.
John Goodall, CEO of Landbay, specialist buy-to-let mortgage lender supported this view in
the same webinar 3 by adding with an example with how this could be viewed from a
lender’s perspective. “If a borrower comes to us and they have 10 properties, and on all
those 10 properties they took payment holidays on all, and all of their tenants for the last 3
months were paying rent.. are we going to waive that through? The answer is probably not,
because we would certainly at the very least have to ask a lot of additional questions as to
why did you request a payment holiday when you weren’t under financial stress. Or perhaps
if you were, was it because of another business you were covering? It’d be sensible to ask
If you are thinking about taking a mortgage payment holiday, it is recommended that you
consult with a mortgage advisor beforehand so that all your possible options are considered
first before proceeding. A reminder that the mortgage payment holiday scheme is not for
those who just fancy a break, but aimed to the borrowers who really need it and have been
affected by Covid-19.