The Government announced the mortgage repayment holiday scheme, in the light of the Coronavirus pandemic, at the end of March. However, now that many tenants on furlough are likely to be on a reduced income – or perhaps no income at all – we will look in more detail at how the scheme operates and whether landlords should use it.
How the buy to let mortgage holiday scheme works
Details vary slightly between lenders but the general principle is that landlords will not have to make a mortgage repayment for up to three months from the date their request is accepted. The aim is to make it easier for landlords to support tenants with rent payment concessions where necessary and facilitate the freeze on evictions introduced by the Government.
Generally either your income or your tenant’s income should have been directly or indirectly affected by the Coronavirus pandemic if you are to benefit. However, neither you nor your tenants need to have had the virus personally.
The original intention was that repayment will recommence after three months. However, the Financial Conduct Authority (FCA) says that it will continue to review the measures as the situation develops and update the guidance appropriately.
Lenders should not charge a fee for this and should ensure that taking a payment holiday will not affect your credit history.
Some lenders require that your payments should not already be in arrears when you apply for the holiday. If they are you will need to talk to them to see what other arrangements can be made.
Mortgage payment holidays and tenants
It is good practice for landlords to keep in touch with their tenants and stay aware of their financial situation at the moment. Not all tenants will be unable to pay all their rent. Many tenants will be aware that their landlords can benefit from a mortgage payment holiday and some may feel that they in turn should benefit from a rent payment holiday. However they may not be aware that both rent and mortgage eventually have to be paid.
If you agree with your tenant to defer some or all of your rent, or perhaps reduce it, it is sensible to have a proper agreement about what the arrangement is.Law firm Anthony Gold advise that landlords who do this should have a formal agreement in order to avoid accidentally breaching the Tenant Fees Act 2019 or creating other legal problems.
How to apply for a buy to let mortgage repayment holiday
Most banks and building societies have set up a system where you can apply for a mortgage payment holiday online.
You don’t have to apply for the full three months payment holiday. You can just request one or two months.
Most lenders have a self-certification system where all you need to do is request a holiday and it will be granted. Some lenders will ask whether it is due to your tenant’s financial difficulties or your own. Lenders generally won’t ask for any evidence of this. But if, for example, your tenant has told you that they cannot afford to pay their rent it would be a good idea to keep details of this.
Once granted the payment holiday system works by your lender not collecting the next due direct debit payment rather than you having to cancel it. Processing applications can take time so if a direct debit is due to be paid before the holiday is agreed it may still be collected by the lender. Barclays for example say they need nine days notice to cancel collecting your payment
Other options to consider instead of a payment holiday
Other options you might consider, which might suit your circumstances better, include asking if you can pay the interest only – assuming you have a repayment mortgage. You could also look at switching your mortgage to a better deal if one is available. For example, if you are on a standard variable rate mortgage there might be a fixed rate deal which is cheaper.
Should you take a buy to let mortgage payment holiday ?
There is no right or wrong answer here. It is up to each landlord to decide if they need and want to claim the holiday. Here are a few things to bear in mind when deciding:
* You will still need to pay the deferred money eventually.
* Interest will continue to be charged on your balance so the overall cost of the mortgage will increase.
* You will either have to increase your monthly mortgage repayments once they resume or alternatively extend the mortgage term to get your mortgage back on track. Your bank or building society should tell you what the extra costs will be.
Money Supermarket have a Mortgage Calculator which can help you understand what the extra costs will be. For example, they suggest that a current monthly mortgage payment of £750 on a mortgage at 2.75% interest with 15 years remaining would rise by £16 a month once your repayments resume.
* There have been some concerns from buy to let mortgage experts that offering tenants rent concessions breaches the terms of many buy to let mortgages. While lenders seem unlikely to make an issue of this right now it is worth bearing in mind.
So, the best advice is probably only to request a buy to let mortgage payment holiday if and when you really have to. And, if you do take a holiday because your tenant cannot pay their rent, to ensure that you have a fair arrangement with your tenant for dealing with the situation going forward.
Remember that both lenders and borrowers are very much in uncharted territory at the moment. If you have any questions or concerns you should speak to your lender or take independent financial advice if necessary.