Payment holidays are back on

– but should you really take advantage of them?

The coronavirus pandemic has affected our financial as well as our physical health. Those financial commitments that looked so affordable back in January and February may have become a burden now.

Many of us are worrying about paying our mortgage or rent, and about trying to keep up with payments towards loans and even the regular bills. However, there is good news. Payment holidays have been mandated by the government. It may mean that we will be able to take a break from the payments for a few months, when hopefully, our finances will be back on track.

But we need to be careful – because some of these payment holiday plans may conceal a sting in the tail.

Paying for your home

Monthly mortgage payments tend to be the largest outgoing for most households, and some mortgage lenders announced repayment holidays even before Chancellor Rishi Sunak announced that the government had made it mandatory. Now, the mortgage payment holidays have been extended to July 2021, but the rules are complicated.

Banks will be forced to give people struggling to pay their home loans a break from mortgage payments. But remember you’re only allowed six months off in total - which means that if you have already been taking full advantage of the payment holiday on your mortgage, you will not be able to apply for another break.

Contact your mortgage lender for details of mortgage holidays. As long as you are currently up to date with payments, you will only have to state that you are having problems to be accepted.

Living with no mortgage to pay for six months might seem very tempting. But there is a downside. Mortgage payments are not wiped out. Instead, they are simply being postponed and interest continues to accumulate.

This means that when the covid crisis is finally over, your mortgage company will either increase your monthly repayment, or extend the term of your mortgage.

In other words, you could end up paying more for your home.

Tenants should continue to pay rent as normal, if they can. The government has made a range of financial support available to tenants, and where you can pay the rent as normal, you should do. Rent levels agreed in your tenancy agreement remain legally due and you should discuss problems with your landlord if you are in difficulty.

Other types of borrowing

Similar rules apply to other types of borrowing. Such as credit cards, motor finance, rent to own, buy-now pay-later schemes and pawnbroking are all covered.

This means a lifeline if your income has suffered because of Covid, but whatever type of borrowing you are burdened with, the maximum payment holiday remains six months. If you have already reached that limit, you may be able to extend it, but remember, it will be recorded on your credit file.

This could make it much more difficult and expensive to get any kind of credit in future.

The key thing to remember, if you are having problems with any kind of lending is to contact your lender and explain your position. Lenders are obliged to help borrowers who have got into difficulty, but things are much easier if you tell them what is going on.

In most cases, they will help you switch to interest-only payments or extend the loan to reduce your monthly repayments.

So – if you have problems with payments right now, there is plenty of help available. The good news is that you may be able to take a repayment holiday – and when it is over the chances for the crisis being over too are looking very much better.

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