Coronavirus and mortgage payment holidays – what help can home owners get?

People facing financial difficulty due to coronavirus will be offered a three-month mortgage holiday, the government said on Tuesday.

Chancellor Rishi Sunak made the announcement as part of a government package designed to shore up the economy during the coronavirus crisis.

Now, mortgage lenders have set out how they will offer payment holidays to ease the burden on households.

Stephen Jones, UK Finance chief executive, said people should "get in touch with their lender at the earliest possible opportunity" to discuss options.

Here are some answers from UK Finance, which represents financial firms, to questions customers may have about their potential options:

• How do ‘payment holidays’ work?

The mortgage repayment is deferred for a period. The monthly payment changes to zero, and interest accrues for the period.

Where repayments are deferred for a time, the borrower will need to make up these repayments in the future, which could be over the remaining term.

It is not longterm solution, but can be particularly appropriate where there is a temporary shortfall of income.

• Will all customers receive an automatic three-month payment holiday?

Firms will help customers to find the best solution for them - which may not be a payment holiday.

• How do I apply for a payment holiday?

Under usual circumstances, the lender would assess the customer’s finances and consider what forbearance options were the most suitable.

But in these extraordinary times, lenders are offering customers who are up-to-date with their mortgage payments - and who are impacted by coronavirus - the ability to self-certify.

Customers who believe they may be impacted, either directly or indirectly, should contact their lender as soon as possible.

• Are all customers eligible for a payment holiday?

Payment holidays are not in the interests of everyone with a mortgage.

The offer of a payment holiday applies to customers who are not already in arrears and whose payments are up-to-date.

Under Financial Conduct Authority (FCA) rules, lenders must ensure that any forbearance offered enables recovery through full repayment of arrears, minimises the long-term impact of arrears, and that the mortgage remains affordable and sustainable.

Overall, forbearance needs to minimise the risk of repossession.

This is why payment holidays are generally short-term. For customers who are already in arrears or in financial difficulty, lenders will consider the full range of options ordinarily available to customers under existing rules.

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• What about customers who may need support longer term?

While the payment holiday is in effect, the capital sum of the loan remains as is, while the interest that would have been paid accrues.

At the end of the payment holiday period, the mortgage rules will re-apply. Lenders will assess a customer's circumstances, including income and expenditure, and come to an arrangement about the best way of making full repayment of the arrears.

If the customer is in financial difficulty, lenders will work out with them to find ways to manage the mortgage and come to an arrangement that would minimise the risk of repossession.

• How will a payment holiday affect my credit score?

Firms will speak to credit reference agencies to ensure customers who take a repayment holiday are treated consistently and will make efforts to ensure that forbearance offered under these circumstances will not result in an adverse impact on the customer’s credit score.

• What if I don’t own my property but rent instead?

Contact your landlord or managing agent if you have problems paying your rent. If you are a landlord and your tenants are unable to pay their rent you should contact your lender as soon as possible to discuss the options that may be open to you.

• What if I’m already in arrears?

You should continue to speak to your lender. Lenders will review existing arrangements if there is a change in circumstances.