VICTORIA BISCHOFF: A mortgage ‘holiday’ might not affect your credit scores but it could still have costly consequences
As the pandemic tore through the nation’s finances in the spring, the promise of a mortgage holiday seemed like a vital financial lifeline for millions of hard-pressed families.
But how many of those who jumped at the chance will come to regret it?
When Chancellor Rishi Sunak first pledged mortgage support in March, ministers were at pains to reassure borrowers that their credit scores would not be affected if they took a payment break.
Even a three-month mortgage holiday can have lasting and costly consequences on your personal finances
Even the phrase ‘mortgage holiday’ sounded harmless. Yet it’s now becoming clear that, far from a carefree break, even a three-month hiatus can have lasting and costly consequences.
Most homeowners assumed that if a payment break wasn’t recorded on their credit file, it would have no impact on their ability to borrow in the future. But, disgracefully, this isn’t the full story.
Lenders have other ways of finding out about it. They can demand that borrowers declare it on applications, or see it via bank statements — and many banks and building societies won’t like the extra risk they associate with it.
Some firms say it is not the mortgage holiday itself that acts as a red flag, but the reason behind it, such as a pay cut.
And while it is right that firms don’t lend to customers who cannot afford to repay debt, more should have been done to warn the nearly two million borrowers who have taken payment holidays since March of potential repercussions.
Struggling to cope with a flood of requests, banks initially took borrowers at their word when they said they needed to halt repayments due to the pandemic.
But it’s clear now that not everyone who took a break really needed one. Some took one as a precaution in case they were later furloughed or lost their job. Others saw the scheme as a chance to save a bit of cash so they could finally do up their house or garden.
Banks have become wise to this and are now clamping down. But it’s a balancing act. Lenders may be right to take a tougher stance, but as we reveal on Page 44, it means that some who really are in need are also being turned away.
Anyone contemplating a mortgage break must remember they are not being given a holiday from interest charges.
These continue to accrue over the break and are added to your debt, which can mean you will pay thousands of pounds extra over the loan’s lifetime. It’s crucial you resume your repayments as soon as possible and, if you can, clear the interest that has built up.
Mortgage holidays are proving a crucial aid for many — but they should be a last resort. Above all, desperate families who followed the Chancellor’s guidance must not be penalised in future by banks who never take a holiday from trying to screw every last penny out of their customers.
My favourite local Italian restaurant closed its doors last week. Like so many new small businesses, it just didn’t have the cash reserves to survive Covid-19.
It is a bitter blow for our local high street — one that is being echoed up and down the country as shops, pubs and restaurants face going to the wall. Money Mail will always promote thrift — but if you can, now is the time to loosen the purse strings a little.
As we have previously reported, many people are better off than ever thanks to lockdown. And while you shouldn’t abandon your new savings habit, spending a little extra could help save businesses.
The launch of Dishy Rishi’s Eat Out To Help Out scheme this week means you don’t even have to spend that much.
Book a table at a participating restaurant Monday to Wednesday and you’ll get 50 per cent off your meal, up to £10 per person. You don’t need a code or coupon — the money is automatically deducted from your bill.
I understand that many people are nervous about venturing out, or put off by the idea of waiters in masks, but if we don’t support our High Streets now, they may not survive to celebrate the end of social distancing with us when that time finally comes.