What are Mortgage Payment Holidays?
We’re in the middle of a pandemic. COVID-19 is sweeping through nations all around the world. Governments are quickly trying to come up with innovative measures to help as many people as possible throughout this tough time where many people are being asked to stay at home and businesses are being asked to close.
In an effort to help, some landlords out there have independently decided to reduce rent for their tenants (or even waive in some cases). However, this unfortunately does not set a precedent for other landlords and, for many, it just isn’t an option. Many tenants are citing mortgage payment holidays as the main reason why more landlords should be waiving rent for their tenants, but they are more complex than you think.
Mortgage Payment Holidays
It’s been well documented that the government has given landlords the option to request a 3-month payment holiday from mortgage lenders if their tenants have been adversely affected by COVID-19. However, what’s not been very well documented is the consequences of a landlord exercising this option.
What should be pointed out is that it’s not ‘free money’, it comes at a cost. Monthly repayments afterwards will be increased due to the missed payments. Additionally, if landlords don’t go about it the right way, while their credit score won’t be affected, they may still be looked at unfavourably by mortgage lenders in the future.
What The Professionals Say
We’ve received information from a reputable broker who has shed some more light on the topic for us.
“Whilst it is recognised that taking a mortgage payment holiday should not affect a person’s credit rating, we are still unsure as to how lenders will react to this when underwriting future mortgages for funding.
One of our major providers has indicated that as part of their future underwriting process, they will investigate as to whether clients have taken advantage of the payment holiday system and whether they had a genuine need to take this.
The early suggestions are that if there was no genuine need, then this could impact negatively on whether they will provide the lending, as they will be looking for a relationship with clients who manage their portfolio professionally, sensibly and with accountability for both their tenants and mortgage requirements.”
In simple terms, if a landlord takes advantage of a mortgage payment holiday without needing to, that mortgage lender may question in the future why the landlord took up the option of a payment holiday so quickly – which in turn questions the professionalism of that landlord in the lender’s eyes, and hence negatively affects their future borrowing capabilities of that landlord (both for new mortgages and remortgages).
Practically Speaking
So on a practical level, if a landlord looks to complete a refinance on their property in the future to release funds so they can renovate a kitchen or bathroom for a tenant, for example, the bank may decline this due to the landlord taking the mortgage payment holiday when there wasn’t clear evidence that they needed it.
With the demand for high-quality accommodation increasing all the time, an abuse of the mortgage payment holiday option during this pandemic could really put the brakes on honest landlords being able to provide the top-level property that they want to offer, and decrease the standard of properties (or even the number of properties) that are available to tenants on the private rental market.
However, this blog is not implying that no landlords should exercise this option, but what is clear is that if landlords are going to agree with their lender to effectively pay them more money in the long run, they certainly have a right to demand clear evidence of hardship from their tenants before they agree to it.
What evidence might you need to provide?
Read Struggling to pay your rent?
