Why Should Lenders Promote Mortgage Payment Holidays To Borrowers?

Borrowers across the UK could take out a mortgage holiday to help them through tough economic times. The research from Smart Money People, the UK’s largest financial services review site, shows that lenders should promote to borrowers the option to take a mortgage payment holiday if they find it challenging to keep up with their repayments.

Whilst many lenders don't offer this product, those who do would help aspiring property investors and those existing investors planning to build their portfolio.

Borrowers must understand their options, and with so much uncertainty in the market currently, a mortgage holiday could be just what they need. 

Brokers See Mortgage Payment Holiday As Lenders’ Support To Property Buyers

Smart Money People’s conducted its twice-yearly Mortgage Lender Benchmark, which dissects the mortgage industry's state and offers actionable insights about the UK mortgage market. 

Their recent benchmark covered 650 brokers, 3000 individual feedback, and 99 UK lenders. According to the views of 650 brokers, lenders should offer mortgage payment holidays as their support to borrowers in response to their clients’ would-be challenges in the next two years. 

Mortgage Payment Holiday As A Financial Cushion During Tough Economic Times

Mortgage payment holidays were prevalent during the pandemic, especially in March 2020, wherein one in six UK mortgages was on a payment deferral. Many borrowers used this and delayed repaying with an initial period of three months and with a cap of 6.

Unfortunately, the promotion of this payment option has declined since then, thus the awareness of the would-be borrowers.

Brokers believe that just like during the pandemic, borrowers may not realise they can take a payment holiday if they are now facing financial difficulty, as lenders now have regressed the assessment of each payment holiday on an individual basis; instead of taking a blanket approach like during the peak of Covid-19 pandemic.

The CEO of Smart Money People, Jacqueline Dewey, said: “We know that mortgage holidays were hugely popular during the pandemic and brokers are suggesting that lenders could remind customers about this financial cushion again now, rather than waiting for them to get into arrears.”

Smart Money People Throws Caution On Taking Mortgage Payment Holiday

The financial services review site emphasises the lessons from previous payment deferral. 

Some borrowers found that even though the government assured them that their credit score would not be affected, some experienced that it became more expensive or more complicated to remortgage after taking a payment holiday. 

Although the deferrals did not appear on credit reports, there are still cautious lenders who had or may still have concerns about future affordability, so keep this in mind if you're considering taking out a mortgage payment holiday.

Insights On Qualifying Who Needs Mortgage Payment Holiday The Most

Smart Money People is convinced that lenders can help more people avoid unnecessary debt by making the terms of the agreement and communication clearer and easier to understand. 

Moreover, lenders can deter those who don’t need mortgage payment holidays to avoid adding pressure on their household finances. 

This interesting issue has been raised as other borrowers have used their deferred payments for home improvements, which is not within their agreement with the lender. The same goes for buy-to-let landlords and property investors who have invested their deferred payments in new properties. 

Jacqueline Dewey continued that as brokers see lenders’ opportunity to help those affected heavily by the inflation, it is crucial to ensure that support is given only to those who really need it and not a handout for those who don’t.

Alternative Ways To Help Borrowers Besides The Mortgage Payment Holiday

The Mortgage Lender Benchmark also emphasised three options brokers are keen to see lenders offer their borrowers, which may help make them stay committed to their mortgages. 

Other creative and flexible ways to help borrowers are: extending the mortgage term to reduce payments, a move to interest-only payments for a period, or an increased tolerance for underpayments.

In line with this, Jacqueline Dewey concluded that lenders might not need to wait for government instructions before offering other financial support options to struggling borrowers. Many brokers believe that lenders have already expanded their support during the pandemic, and they can do it again to ease the current situation of struggling borrowers.