The pandemic is far from over and with the UK in grips of a second wave, there is a lot of uncertainty looming on the horizon. So far, homeowners in the UK have been relatively sheltered from the effects of this financial crisis.
But with Ireland already on the verge of what seems like a mortgage arrears crisis, anxiety around the issue of mortgages is also increasing in the UK, especially in the wake of the second wave – perhaps rightly so.
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Mortgage Payment Breaks Have Been Tiding Homeowners Over
Compared to tenants, homeowners have had it easier so far. Following the first wave, most mortgage providers swiftly offered support to struggling homeowners by offering them payment breaks.
The Financial Conduct Authority (FCA) has also been very proactive in terms of interventions. The financial watchdog issued directives to banks and other lenders to alleviate the burden on their mortgage customers and offer them support.
Additionally, steps such as the furlough scheme also enabled many homeowners to pay their mortgages in full throughout the pandemic.
This does not hold for tenants.
Although some landlords responded by offering concessions in the form of rent breaks, many tenants still found it hard to make payments as they had to face pay cuts and were living off of 80% of their actual salary.
Some tenants also sought other forms of partial support. This included applying for Universal Credit (UC) which helped with rent arrears but did not cover the full amount.
Meanwhile, homeowners found it easier to weather these tough times because the mortgage payment breaks usually covered the full cost of the mortgage. This along with the fact that homeowners were receiving 80% of their salaries helped them manage their finances in a better way.
But all this can change during the second wave. Most banks already withdrew offers for mortgage payment breaks and government officials are contemplating revoking some of the financial support schemes available to citizens.
Mortgage Arrears vs Rent Arrears in the Times to Come
If you are based in the UK and unable to pay your rent, you can always apply for Universal Credit. Universal Credit is a brilliant scheme designed especially for people with low income, unemployed individuals, and citizens who are unable to work. It is basically a monthly payment that was introduced to help all such people with their living expenses.
While UC has helped tenants support themselves during the pandemic, it makes no such concessions for most homeowners. Only homeowners who have been receiving Universal Credit for a minimum of 39 weeks are eligible to apply for support through the scheme.
Moreover, only those homeowners who have no earnings at all are entitled to get helped through UC. This, by default, leaves out a vast percentage of homeowners who receive nothing. On the other hand, tenants who are earning or working part-time are still entitled to rent support under Universal Credit.
It is also worth noting that the scanty support offered to homeowners under the Universal Credit scheme is also governed by conditions. For instance, the support only covers interest on the mortgage up to a rate of 2.61% on the first £200,000.
So, if your mortgage is for a higher amount or your interest rate is higher than 2.61% you are not entitled to any additional support and must pay out of your pocket to cover the remaining amount.
Another constraining condition is that support available through UC comes in the form of a loan that is secured against your home.
Essentially, all these signs indicate that new risks may emerge for homeowners during this double-dip recession. The focus may also shift from only tenants and rent arrears to homeowners and mortgage arrears as well. A dismal possibility is that we will not just have tenants who are at risk of eviction but also homeowners who are at risk of repossession.
So, Was it Always This Way?
The short answer to that is no. In the past, the UK government took concrete steps to protect the interests of homeowners and mitigate their risk.
For example, during the great recession of 2007-08, the government feared that the number of repossessions would skyrocket. It responded by amending the Support for Mortgage Interest Scheme and ensuring that support was available after 13 weeks instead of 39 weeks.
Also, the offered financial support came in the form of a benefit that did not need to be repaid – and since the average mortgage payment was substantially lower than it is today, more homeowners were able to avail the scheme and enjoy some financial breathing space.
What to Do If You Cannot Pay Your Mortgage?
If your finances have been affected by COVID-19 or you are struggling to keep up with mortgage payments, it is pertinent to act now instead of ignoring the situation. As we mentioned earlier, payment breaks are available to tide over struggling homeowners.
Earlier during the pandemic, the government had offered support to homeowners in the form of mortgage payment holidays. A mortgage payment holiday can stop or lower your monthly repayments for up to three months. According to reports, almost two million homeowners have received mortgage payment breaks since the beginning of the outbreak.
If already are on a mortgage payment break and you fear you still won’t be able to make mortgage payments on time after it ends, do not worry. There is good news for you too. The government recently extended the mortgage payment holiday scheme by three months. This means that you can ask your mortgage lender to extend your ongoing payment break for a further three months.
If you have not requested a payment holiday so far, you can do so now. The last date to apply for a payment break is 31 October. The Treasury has also extended the ban on repossessions till the last day of October to offer relief to homeowners.
Remember, the FCA has called on banks and other mortgage providers to offer maximum support to struggling homeowners. Mortgage lenders are obligated to treat all their clients fairly during the pandemic. Even after your break ends, mortgage providers are required to create tailored plans to support you and help you repay the deferred amount in a manageable way.
Another vital step you should not skip is debt prioritisation. Your monthly mortgage payments and arrears are a priority debt so make sure you cover them before you move to other debts like credit cards, personal debts, and overdrafts.
If you are struggling to repay your mortgage and you also have these other forms of debt piling up, it could be a sign that you need help with debt. In such a case, it is imperative that you seek expert debt help before your financial situation gets out of hand.
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Money Advisor is committed to providing the best possible service to all those who need help with their finances. If you are struggling to make ends meet or have experienced a change in circumstances that have affected your ability to manage your finances, get in touch with our team for timely support. Give us a call on 0800 056 6820