If something appears too good to be true, it probably is – and this adage is ringing true for some of the huge number of customers who chose to defer the payments on their mortgage as part of the payment holiday scheme that was announced by the government in March. It was never a payment holiday – merely a deferral – but there are other downsides for borrowers who have taken up the offer, and these are now rapidly becoming apparent.
According to a recent poll by Mortgage Solutions, nearly four in 10 (39%) brokers said that they couldn’t place a case as a result of their client having taken a mortgage payment holiday or having accessed a government support scheme. A further 22% said they couldn’t place a case initially but had managed to place it elsewhere, possibly incurring less attractive rate options. Given that payment holidays have been taken on more than 1.8m mortgages since March, there will be many clients whose finance options may be severely curtailed as a result. Yet they will not know this until they commence investigations for a new mortgage!
It was widely accepted that this government initiative was both a positive and necessary step to support financial hardship brought about by COVID-19. This mortgage payment holiday should not negatively impact a borrower’s credit report, but some lenders seem to have been registering them as a late or missed payment.
This may be rectified if the client complains, but this process takes time and, as the FCA has pointed out, credit files are not the only source of information available to lenders. Many have introduced supplementary questions as part of their application process to understand how applicants have navigated the COVID-19 period and there seem to be particular issues for landlords who have taken a payment holiday in the last three months.
The lesson for brokers here is clear – check with your clients upfront regarding payment holidays. As with any complication with an application, it is better to fully understand the situation from the outset than to find out only once a case has sat with a lender’s underwriters for a period of time.
If you are working with a landlord client who has taken a payment holiday in the last three months and is looking for a new mortgage where an urgent completion is required, perhaps to purchase a new property or release funds to grow their portfolio, it could be the case that short-term lending might offer the solution they are looking for. This may not be the best approach for all clients, but in the right circumstances a bridging loan may help your client to achieve the fast completion they need. It may also elongate the time since they took their payment holiday and the encourage greater acceptance by lenders that this was not a choice by the borrower, but rather more one of need at the time of the pandemic.
Even if bridging is not the right route for your client, there is no harm in opening a realistic dialogue with them, so that their plans and motivations are clear in order that they can be provided with the right help and advice when the time comes to make similar decisions in the future.
Vic Jannels, CEO of the ASTL
A version of this article appeared in the July online edition of Specialist Lending Solutions