Mortgage Holiday Woes

[rantnrave]

"My Mortgage Holiday Means I Can't Get A Loan"

https://www.bbc.co.uk/news/business-53222765

"At the start of the Covid-19 pandemic, my revenue stream evaporated in six days," says Sara Taylor.

Ms Taylor runs an events management company. It's been voted the worst industry to be working in during 2020 by the website Reddit, because of the impact of the lockdown.

She did not qualify for any of the government support for people who had lost their incomes during the pandemic, so she took a mortgage holiday - a payment deferral - to cut her outgoings as much as possible.

Ms Taylor is far from alone. One in six mortgage holders, or nearly two million people, have suspended their payments during the pandemic.

Now many of those borrowers are approaching the end of the three-month payment holiday and will have to decide whether to extend.

Not expecting her industry to recover until next year, Ms Taylor says she will ask for an extension. "My need is as great the second time round as it was the first," she says.

'It will come back to bite you'

Mortgage holidays were introduced in March, allowing people to defer payments, ostensibly without affecting their credit rating.

However, what seemed like a quick and simple way to cut people's outgoings immediately could have unintended consequences.

Some borrowers who have taken mortgage holidays have now found they are being declined when applying for loans.

Lisa Orme is the managing director of Keys Mortgages. She has been warning borrowers not to take them unless they have no other option.

"We know, anecdotally, that people have used them to pay off credit cards, pay for holidays, pay for cars," she says.

"I've been saying to people, despite all these promises about how it won't affect your credit file, I absolutely guarantee it will come back to bite you."

'I've now been told I can't get a loan'

Matt Pollen was just about to launch his start-up and was trying to raise funding from investors when the lockdown began. The launch had to be delayed, so he applied for a mortgage holiday as a security measure, in case the lockdown lasted a long time.

"The only advice I saw was the general advice from the government that it wouldn't affect any future credit history," he says.

But when Mr Pollen and his girlfriend tried to find out if they could take out a loan in the future to fund an extension, he was told he wouldn't be accepted.

"One of the first questions they asked was had we taken out a mortgage holiday - and when I said yes, they said a lot of the companies they work with aren't lending to people on them at the moment."

How do people decide who can borrow money?

The advice from the Financial Conduct Authority (FCA) is that a mortgage holiday will not affect your credit record, but that it could affect future lending decisions.

Even though there is no mark left on your credit report when you take a mortgage holiday, when you try to borrow money, lenders look at thousands of pieces of data.

Sarah Coles, personal finance analyst with Hargreaves Lansdown, explains: "Banks will look at your payment history. And if you've got a three-month gap around this period, they are going to know that has clearly come from a mortgage holiday.

"If you've got a six-month gap, they are going to know you've had to extend it. And that will give them a really clear indication that you were having some financial issues at the time. So it will then make it harder to borrow."

In May, the FCA updated its guidance to clarify this: "Lenders may use sources other than credit files, such as bank account information, to take account of other factors in their lending decisions. These factors could include changes to income and expenditure."

Extending the holiday

Lenders are currently writing to customers who are nearing the end of their three-month mortgage holidays to outline the details of their new monthly payment.

Virgin Money Group says any payment holiday will not affect its future lending decisions - but that's unusual.

Lloyds Banking Group - which includes the Halifax - says it has approved 450,000 payment holidays for its customers.

Tom Martin, remote mortgages director at the Halifax, explains that being on a mortgage holiday could affect your ability to borrow: "We base our decisions on a full understanding of a customer's up-to-date circumstances," he says.

"We do take into consideration your latest financial position, but we recognise as well that these are unprecedented times and we will consider individual circumstances as part of that process."

He advises borrowers to wait three months after resuming payments before applying for more borrowing - and if people are able to resume their repayments, they should, as this stops extra interest being charged.

NatWest said: "We will take customers' circumstances into consideration when considering any borrowing requests. If a customer's income is currently impacted by Covid and they are unable to afford their mortgage, we would consider this."

The bank also said that if customers resumed repayments after a payment holiday, the deferral would not be a factor in any lending decision.

Joe Garner, chief executive of Nationwide, the country's biggest building society, told the BBC in May that he thought a second mortgage holiday should be marked on a borrower's record, although it is not doing so, in line with FCA guidance.

A spokesperson for the Treasury said: "The Financial Conduct Authority has been clear that payment holidays should not have a long-term impact on people's credit rating."

Mortgage holders have until 31 October to apply for a three-month mortgage holiday if their finances have been affected by the pandemic. The FCA has banned repossessions until the end of October.

[Killer Bunny]

This will exacerbate / elongate the HPC. Bring. It. On!

[dougless]

Excellent news although rather predictable.

[rantnrave]

7 minutes ago, dougless said:

Excellent news although rather predictable.

I think many people thought not having to work for weeks on end, while not having to pay the mortgage for a bit, wouldn't have any long-term consequences...

[Locke]

3 minutes ago, rantnrave said:

I think many people thought not having to work for weeks on end, while not having to pay the mortgage for a bit, wouldn't have any long-term consequences...

But the government said...

 

Jingle mail,

Jingle mail,

Jingle all the way!

Oh what fun it is to live,

In a one bed open plan!

[winkie]

If existing debt is unmanageable at the moment because of a drop in income why would taking on more debt make it any easier, especially more debt at a higher price?

[spyguy]

Beware Geeks bearing gifts

 

This bit:

 

Some borrowers who have taken mortgage holidays have now found they are being declined when applying for loans.

Lisa Orme is the managing director of Keys Mortgages. She has been warning borrowers not to take them unless they have no other option.

"We know, anecdotally, that people have used them to pay off credit cards, pay for holidays, pay for cars," she says.

"I've been saying to people, despite all these promises about how it won't affect your credit file, I absolutely guarantee it will come back to bite you."

 

In short, youll be increasing your borrowings as your income is likely to fall.

[cbathpc]

47 minutes ago, rantnrave said:

The advice from the Financial Conduct Authority (FCA) is that a mortgage holiday will not affect your credit record, but that it could affect future lending decisions.

LOL

I know loads who did it for the "yay free money". Oh well.. 

[DiggerUK]

Nobody lied, your credit rating is not affected by the mortgage holiday.

What is affected is the decision of the potential lender, their actuaries will naturally asses the borrower as higher risk. 
 

Lets face facts here, some people live their lives constantly in debt and look for the quickest way to stop repayments.......then winge and whine like seasoned snowflakes when forced to face the consequences..._

[Odysseus]

14 minutes ago, cbathpc said:

LOL

I know loads who did it for the "yay free money". Oh well.. 

Like my brother who has to remortgage in 6 months.....

[Smiley George]

19 minutes ago, spyguy said:

"We know, anecdotally, that people have used them to pay off credit cards, pay for holidays, pay for cars," she says.

Says it all about the society we live in today. Faced with an event which is predicted to cause a worldwide depression of greater magnitude than the 1920's - what do people do??  Moral hazard - hah!

The feckless debt junkies will wail and scream at how unfair it all is - and will probably be bailed out in some way.

I might just take all my savings, make a fire and burn them - at least I'll feel warm for a few mins.

[user not found]

i wonder who the OAPs in big houses are going to sell to when they come to downsize ... going to be a lot of people unable to upsize from their 3 bed semi as the increase in mortgage will be declined. Even more so once prices fall and the equity disappears.  Most people won't realise that falling prices/increase in debt affects their ability to move. Expect lots of sob stories on mumsnet and daily wail!

I had a discussion with my sister once, who thought that if house prices fall, the banks will shrink the size of the mortgage to match.  She was saved from her stupidity by marrying a rich chap who bought them 2 side by side railway cottages in the new forest. A bargain for £500k*

 

* Each,

 

[richmondtw]

1 hour ago, Killer Bunny said:

This will exacerbate / elongate the HPC. Bring. It. On!

If people are unable to get a larger mortgage they will just not move and stocks will be low so prices will not fall

[xxxx]

Due to Covid, lenders are now using Open Bank for mortgage applications.  This gives a years snapshot of banking transactions.  If any mortgage/loan monthly payments are missing, the application is immediately refused.

[user not found]

7 minutes ago, richmondtw said:

If people are unable to get a larger mortgage they will just not move and stocks will be low so prices will not fall

You forget forced sales - debt, divorce, death & OAPs moving into homes - those places will need to be sold. So prices will have to drop.

[2buyornot2buy]

12 minutes ago, richmondtw said:

If people are unable to get a larger mortgage they will just not move and stocks will be low so prices will not fall

Prices are set at the margins. 

[spyguy]

41 minutes ago, 2buyornot2buy said:

Prices are set at the margins. 

Prices are set by people who can transact.

There's a shrinking population of those at the mo.

 

[Killer Bunny]

1 hour ago, richmondtw said:

If people are unable to get a larger mortgage they will just not move and stocks will be low so prices will not fall

No doubt to the former but it's a bad conclusion, as I see it.

The EAs need to eat. (And pay for their Minis.)

[Si1]

Isn't the answer that you rearrange your house, arrange your own bed under the stairs or something, and then take in as many lodgers as possible? 

It's just these people seem like thrusting entrepreneurs, not the entitled idiots the news is making them out to be...

[Huggy]

Hmmmm. No job, not paying the mortgage, applying for more loans? Some people must just enjoy being rinsed.

I will not be happy with anything other than (at least) an 85% peak to trough crash. These muppets will thankful eventually if it does as they will get so burned they will never make the same mistake again.

[Si1]

13 minutes ago, Huggy said:

Hmmmm. No job, not paying the mortgage, applying for more loans? Some people must just enjoy being rinsed.

I will not be happy with anything other than (at least) an 85% peak to trough crash. These muppets will thankful eventually if it does as they will get so burned they will never make the same mistake again.

I'm so glad Mark Carney was so vigilant.

[Switch625]

 

16 minutes ago, Huggy said:

Hmmmm. No job, not paying the mortgage, applying for more loans? Some people must just enjoy being rinsed.

I will not be happy with anything other than (at least) an 85% peak to trough crash. These muppets will thankful eventually if it does as they will get so burned they will never make the same mistake again.

I think you are likely to remain unhappy then.

Drops, quite possibly substantial ones look increasingly likely, but I can't see it getting anywhere near 85%. Frankly if it falls 10% I will be better off having chosen to rent rather than to buy.

[Trump Invective]

Nice additional negative on the credit file for being refused. Terrible time to borrow, didn't people realise this??

[qejunkie]

1 hour ago, richmondtw said:

If people are unable to get a larger mortgage they will just not move and stocks will be low so prices will not fall

Some will be in that boat. Some will see that they have a debt they can't afford and would rather sell on the front foot rather than be repossessed.  

[2buyornot2buy]

1 hour ago, spyguy said:

Prices are set by people who can transact.

There's a shrinking population of those at the mo.

 

I agree.