Get ready for stories and figure like this going forward. £7,200.06 is a real number and plays out the scenario if it is decided to turn a three month mortgage payment holiday into a six month one which has been called for recently. Of course, during the six months it would have saved you £3,507.84 in monthly payments and so the net figure is £3,692.22.
What’s more it uses figures that could be considered by this writer, “light”:
- The average mortgage debt of £132,242 was used for this calculation
- The average mortgage interest rate was 2.37%
- The original term of the mortgage assumed to be 25 years
The top two are figures taken from the Money Charity’s publication in March 2020 before it stopped publishing as a result of lack of funding following the Covid-19 outbreak. The figures are based on the 11 million households with mortgage debt in January 2020.
The issue with the above is you may be in a situation where your mortgage debt is higher, and your term is longer. The positive though is that the average mortgage rate for new loans is actually lower at 1.87%. As such, what happens if we model the numbers on that (again assuming a six month payment holiday and sticking with a 25 year term) but updating the figures in line with the average new mortgage borrowing amounts which are:
- For first time buyers: £174,275
- For homemovers: £230,847
Your payment holidays would cost you over the term:
- £8,872.92 in extra mortgage payments (£30.18 extra per month post holiday) for the first time buyers, with a net figure of £4,506.78
- £11,574.12 in extra mortgage payments (£39.98 extra per month post holiday) for the home movers, with a net figure of £5,970.66
Of course with all the above figures there are a couple of assumptions:
- Your credit rating is able to continue to secure you a mortgage at average rates
- The average rates play out for the entire term of the mortgage. Naturally in reality they will fluctuate
The point of looking at the above figures is to give a suggestion that before anyone embarks on a payment holiday with a lender is to speak to an impartial mortgage broker first. A good broker will take the time to go through the above calculations and help you make sense of them.
The landscape is currently complicated and the fear is that taking a payment holiday without working out the numbers could be detrimental to your future finances. In addition to this, we mortgage professionals are seeing lenders starting to tighten criteria for those that have taken a payment holiday when assessing new applications.
The hope is that those currently on or taking payment holidays genuinely need them and when things return to a new normal we as brokers can assist individuals in the best way possible to get back on track.
Get in touch by emailing firstname.lastname@example.org
As a mortgage is secured against your home or buy to let property (if applicable), it may be repossessed if you do not keep up the mortgage repayments
Payment holiday extensions: https://www.ft.com/content/8c11a5a6-e812-46f6-986b-9b6a09047023
Figures for the calculations: https://themoneycharity.org.uk/media/March-2020-Money-Statistics.pdf
Lenders making decisions around payment holidays: https://www.moneysavingexpert.com/news/2020/05/payment-holidays-may-hurt-mortgage-application-chances-via-the-b/