Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
When the COVID-19 outbreak hit the UK, the government introduced rules allowing homeowners to take mortgage payment holidays, as part of measures to support people’s incomes during lockdown.
Under the rules, you could take an initial 3-month break in your monthly home loan payments if your finances were tight. Some have since been able to renew these payment holidays for a further 3 months.
But many of these payment holidays will end on 31 October in line with government rules.
Here’s everything you need to know if you took a mortgage payment holiday, but now want to remortgage.
Remortgaging is when you switch your existing mortgage to a new deal, but stay in the same property. You could switch to a new lender, or stick with your existing one.
Like a regular mortgage, a remortgage is a loan taken out against the value of your property.
When the government first introduced rules instructing banks and building societies to offer monthly repayment holidays to those who needed them, it promised that these payment breaks should not be reflected in customers’ credit files.
This is important because a person’s credit file contains key information that banks, credit companies and other financial services providers use to determine whether to offer credit.
However, tens of thousands of those who took advantage of the ability to pause their monthly home loan payments are reportedly finding that their payment holiday has now made it harder to remortgage.
This is because when you apply to take out a loan, a credit card or even a mortgage, your credit file is not the only information about you that lenders use when determining whether to grant a loan.
They can use information from a range of sources, including your bank statements, to check if you have been able to make regular payments on any existing debts and obligations. Lenders may be able to see if a person has taken a payment holiday.
Sadly, this means that if you took a mortgage holiday, you’re likely to be less attractive to lenders and the mortgaging options open to you will shrink.
If you took a mortgage payment holiday, here are some things that could help you improve your chances when it comes to applying for another mortgage.
Try and keep your mortgage holiday as short as possible. These are unprecedented times, and many will be struggling to cover all of their household costs while their income is reduced. However, if at all possible, try and keep the amount of time your payment break lasts to a minimum, as the interest on your mortgage will continue mounting up.
Try and wait 3 months after resuming your mortgage payments before applying for a new mortgage. By resuming payments for a decent period of time after deferring mortgage payments for a few months, you should be in a better position to show potential lenders that you can still make repayments regularly.
Under current government rules, lenders will no longer be obliged to allow customers to apply for mortgage deferrals after 31 March. However, some lenders have indicated that they will enable customers to do so from November.
But the Financial Conduct Authority has said that taking a payment holiday after 31 October will affect your credit rating, so this should be absolutely avoided if at all possible.
Remortgaging is expensive and you’re likely to face set-up and admin fees when you switch mortgage deals. Some lenders advertise fee-free deals, but they might just be hiding the fees within their interest rates.
Also check whether your existing lender charges an early repayment fee. These can be high in some cases so you’ll need to factor it into your overall cost workings.
A mortgage adviser can help you to work out the best deal. But they may also charge for their advice, so that’s another cost to factor into your calculations, along with legal fees and valuation fees.
The interest rates on your mortgage will be based on your loan-to-value and your credit history.
As mentioned above, a mortgage adviser or mortgage broker can help you work out the best deal available to you.
If you’re having difficulty finding a good remortgage deal because of your payment holiday, a good broker may be especially valuable.
You may be able to speak to a broker who specialises in finding mortgage deals for those in your situation or those with poor credit histories.
If you’re remortgaging, it’s likely you know a little about mortgages already. But the industry is always changing, and so are your finances. So it’s still wise to do your homework.
Mortgage calculators can be a good place to start. Ours can help you work out:
The next step is to compare remortgage deals here. Our remortgage comparison table is a great place to check out what’s available.
Remortgaging is a major financial decision.
It can save you money and help you clear your mortgage quicker. But it could also leave you worse off if you choose the wrong path.
Do your research, learn the jargon and get professional advice if you need to.