As of 31st October, payment holidays on mortgages, loans, and credit cards, are ending, so what can I do next?
Since the start of the pandemic, one in six mortgage holders – or nearly two million people – have suspended their usual repayments, but as the end of the payment holiday scheme looms, it is really important to prepare yourself financially and to explore any other options that may help you during this transitional period.
If you are one of the millions of people who have applied for a payment holiday on a mortgage, loan, or credit card, you may be wondering what will happen when your first repayment becomes due. If they haven’t done so already, your provider will get in touch with you before your first repayment to outline the terms of your new agreement. It is essential that you understand these new terms as it could result in you paying more each month, it can extend the length of the agreement, and it may increase the overall interest that you pay back.
What other help is out there?
Whilst you will not be able to take a 3-month “payment holiday” after the 31st October, your mortgage, loan, or credit card provider can offer you a more tailored arrangement if you are still being impacted by the pandemic; this arrangement will be determined by your own personal situation.
The FCA (Financial Conduct Authority) have advised that providers should consider a range of support options for consumers who may still struggle to meet their usual repayments after 31st October. These options may include:
- A short-term payment deferral: If you still cannot afford to pay anything, your lender could allow a further short-term payment deferral.
- Reduced payment arrangement: If you feel you can pay something towards your loan or mortgage, but not the full amount, your provider may allow you to make short-term reduced payments.
- A change in mortgage type: They could switch you to an interest-only mortgage or to a product with a different interest rate.
- Reducing your overall interest: Your provider should ensure the amount you owe isn’t spiralling out of control, so they may agree to reduce or waive any interest.
Remember – the best thing to do is to contact your provider to see what additional support they can offer, but make sure that it will be beneficial for you. Some providers may not offer another repayment plan if they think it will cause long-term debt issues, so be honest about your circumstances to ensure the support that they offer you is necessary.
What about my credit file?
If you have taken a payment holiday before 31st October, your credit file should not have been affected, however, if you do need to apply for additional support after this date, your loan, mortgage, or credit card provider could begin to report any missed or partial payments against your credit file. This could have an impact on your ability to take out credit in the future so it is important to have this discussion with your provider so that you can understand how this will affect your future credit prospects.
Whilst you can still apply for a payment holiday until 31st October, it’s important to apply only if you really need to. It can be tempting to take advantage of a payment holiday or a tailored repayment scheme, but please ask yourself “Do I really need to do this?” It can result in your agreement being extended, you could end up paying more in interest, and it could even affect your ability to take out further credit – which includes re-mortgaging – in the future. According to figures from UK Finance, 70% of people who have taken a payment holiday did not need to take one due to financial reasons.
But I don’t think I can afford anything
You may think you do not have enough money to make a full repayment – or even a partial repayment – towards your loan or credit card, but you may be surprised. If you haven’t already done so, make an emergency monthly budget to establish if you can offer something towards the loans. Can you cut back on any of your monthly non-essential or variables expenses? This may free up some valuable disposable income that you could use towards paying some, if not all, of your repayment amount. You can find helpful budgeting tips on our website here or fill in a budget planner on the Money Advice Service website here.
Have you been made redundant or lost a significant portion of your income? Make sure you are claiming all the financial aid that is available to you. It might have been a while since you last checked your benefit eligibility; it may even be the first time you have been in this position financially due to the pandemic, but you’re not alone. Take a look to see if you are eligible for any help by using the Benefits Calculator on the Turn2Us website: https://www.turn2us.org.uk/
Would a financial solution work?
If you are expecting more long-term financial issues due to a loss of employment, reduction in business revenue, or spiralling debt problems, a formal – or informal -financial solution may be a viable option for you. Why not try our free Online Debt Advice tool to determine whether a financial solution will suit your needs?
I can’t decide what’s best for me
If you are having difficulty coming to a reasonable repayment arrangement with your provider(s), or if you are just unsure on what is best suited to your situation, you can speak with us. We can provide help and advice relating to unsecured credit and debt, so give us a call on 01925 599400 – or our Freephone line 0800 210 0638 – and speak with a member of our Financial Solutions Team.