Mortgage holiday for homeowners and help for renters: as good as it sounds?

This post is referring to the UK Government's announcement here: https://www.dailymail.co.uk/news/article-8122789/Coronavirus-Rishi-Sunak-announces-three-month-mortgage-payment-holiday.html

We are not mortgage advisers and this is not a financial or legal advice. This is a post from me, Natalia Andrews, a property investor as well as an immigration lawyer, and I am doing this in response to our immigration clients, asking for some advice during the uncertain times of COVID-19. For details, or if you are in financial difficulty, you need to seek a professional financial advice. 

Mortgage Holiday - you will still owe this money! 

My bank, Halifax, confirmed that they were offering a mortgage holiday for 3 months, same as other banks did. They warned, however, that you would still owe this money.

They aren't cancelling these payments but adding them to the loan, so you will be paying it later. Most likely, in small instalments, so you probably won’t feel much of a difference in your monthly payments when we get back to normal after COVID-19. You will also owe interest on that money, ie since banks provided you this as ‘credit’, they will be entitled to interest on the money you didn’t pay during these 3 months. 

Does it affect your credit rating?

I understand that normally, it does. If it doesn't, it may still affect your ability to borrow in the future since lenders often ask about history of payments (and a history of arrears). 

In this situation, however, lenders are told by the Government to do their best not to jeopardise a homeowner’s credit history, since this is not an ordinary circumstance. 

Since it is not a law, by a request ’to do your best’, you should keep an eye on how your lender handles it. 

Does it cover buy-to-let mortgages?

Yes, on the understanding that savings will be passed on to tenants. For example, if your BTL mortgage is £400 per month, you could reduce tenant’s rent by £400. Most landlords would still need the difference (rent minus mortgage ‘relief’). Firstly, to pay for other expenses, such as insurance, service charge, maintenance etc. Secondly, because it is their income. And thirdly, because savings passed on to tenants are for the amount of mortgage, not for the amount of whole rent. 

Help with rent:

As above, your landlord could offer you a 'rent holiday’ for the amount of their mortgage payment. 

They don’t have to ask their bank for a mortgage holiday, but if they do, they are expected to pass this on to you, thus reducing what you pay to them. 

At the moment I read they are expected but not ordered to do so (but most landlords are decent and will do). 

Will you still owe this money later? My understanding, yes, you will. Just not now - later.

Your tenancy contract remains for the same amount, same as your landlord’s mortgage does. 

How will you pay it later? 

Here the proposals are that the landlords are expected to work together with tenants to work out a suitable repayment plan. Maybe spread it over for each of the remaining months of tenancy and/or deposit. It sounds reasonable in theory, in practice, who knows!

In the meantime, renters are protected by the newly-introduced 3-month notice period on their tenancies. This is not the same as a ban on evictions for 3 months, which was initially announced. It is a longer notice period. Normally, the landlord has to give a tenant a 2 -month notice to terminate their tenancy (but not before the end of their tenancy agreement unless it provides a break clause). The new rule, under Coronavirus Act 2020, extended this period to 3 months. After that, however, landlords can still ask tenants to leave , i.e. issue a Section 21 or Section 8 notice.

The situation may change again, however, there are already talks to introduce an actual moratorium on evictions for 3 months and even extend this for 6 months. We will update this as it happens. 

Natalia Andrews