As the country first approached lockdown in March, it became clear the impact of the pandemic to the UK economy was going to be huge. As businesses across the country especially in the retail, hospitality and beauty industries were closed and others worked frantically to ensure their staff could work remotely, millions were faced with the prospect of being furloughed or even losing their job. Confronted with this terrible scenario, unprecedented government measures needed to be taken. For those with mortgages, this meant a three-month mortgage payment holiday was made available for any borrowers who had been financially impacted by Covid-19.
The next few weeks were challenging. For customers, call waiting times sky-rocketed and anxiety around job security was added to concern for our loved one’s health and wellbeing as well as the need to adapt to a life lived under lockdown. For lenders, ways to enable huge numbers of staff to work from home had to be arranged in an instant, customer services were working flat out to answer calls and back-end systems to enable a significant amount of payment holidays to be processed, which would usually take months, were rapidly built and deployed.
We know, from our own customers, how scary and uncertain this peak time was for everyone waiting for a decision or trying to get through to their lender on the phone. At the same time, lenders were trying their absolute best to react and adapt to a situation no one had dealt with before.
Three months on it is estimated that around 1.9m mortgage payment holidays are now in place across the UK. Those who took a three-month holiday in the first few weeks of lockdown are now seeing this ‘holiday’ come to an end and lenders’ attention is now fully focused on what happens next.
As lockdown eases, some consumers are beginning to come off their payment holidays
Analysis by UK Finance suggests that 60-70% of those currently on a payment holiday could now afford to go back to some level of repayment. This is a positive sign because we must remember that, despite the name, this is not a holiday, but a deferral of payment to a later date. For those on payment holidays, interest has been accruing during this period. And for those who are still unable to pay their mortgage, the government and lenders are keen to ensure they can still get support and an additional three-month payment holiday extension can be arranged if needed.
But like lockdown, coming out of a payment holiday is far more complicated than starting one in the first place. It’s not a simple ‘tick the box to opt-out’ process. Lenders need to understand each borrower’s circumstances to assess what the best solution for them might be based on their latest financial situation. If a borrower can afford to restart making payments - either in full or in part - this will reduce the cost of the mortgage compared to extending the payment holiday and making no payment. And for those only able to afford a partial repayment, some solutions would allow payment to take place at a reduced rate through, for example, a mortgage term extension or a temporary switch to an interest-only loan.
The challenge the industry now faces is that lenders need to work with nearly 2 million borrowers over the coming weeks and months to explain the options and agree the next steps in each case. While lenders certainly have better processes in place now and are more prepared than at the start of the crisis, this is still going to be a huge operational challenge. Some will organise this through online journeys, some will choose to send letters and others will want to speak direct to their borrowers. Long call wait times may return, as hundreds of thousands of new payment amounts are agreed and direct debit mandates reinstated.
What if you took a payment holiday?
If you haven’t heard from your lender yet, and your payment holiday is due to end in less than a month, it may be worth getting in touch with them sooner rather than later. This will allow you to get ahead of the curve in working out the best next steps for you. I’d recommend making an assessment of what you can afford by reviewing your income and expenses before you speak to them. Lenders want to help so by being honest and knowing what you can and can’t afford, they can take the time to discuss the options and find the right solution for you. It is a much better route than automatically asking for an extension of your mortgage holiday. So long as you can afford it, it could save you a lot of money in the long run too.
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Vicki Harris has 20 years of experience working in challenger financial services brands, working across asset management, banking and specialist lending. She is Chief Commercial Officer of Kensington Mortgages, the UK’s leading non-bank specialist mortgage lender.