Don’t take a mortgage holiday
Don’t take a “mortgage holiday” if you can help it, says David Lawrenson of LettingFocus.com.
When the virus panic started, around 2 million people, including landlords whose tenants were struggling, turned to their mortgage company to give them a 3 month holiday. They were given the clear impression that by doing this, there would be no impact on their credit rating.
I was one of the few landlord experts who warned against people doing this in a previous blog.
Now it seems I was right to be concerned.
Lenders are rejecting applications from people who asked for a mortgage holiday, despite the Financial Conduct Authority (FCA) saying that banks and other lenders should not be leaving a mark on the credit file of customers who have asked for help.
As I suggested before, despite the guff from the FCA, the rules still allow mortgage lenders to examine bank statements to see if a payment break was taken or to force borrowers to disclose this.
Lenders then use this information to decide on future applications. This has meant borrowers being charged higher interest rates on mortgage loans, personal loans and credit cards – in fact any finance.
Even worse, people could end up being denied credit altogether.
Also, business owners could be blocked from taking out a mortgage on their own home or a buy to let if they have taken a government-backed loan or if they have furloughed employees. It appears that some directors are being told this is because the lender has worries about the security of their own business – and hence they worry about any other mortgage they wish to take.
So, my advice is as it was before – only apply for a mortgage holiday if there is no other choice.
Interestingly, the FCA advice at their website has recently altered from, “taking a payment holiday will not have a negative impact on your credit file” to add that “payment breaks could affect creditworthiness assessments”.
The point is that there is a difference between your “credit file” and a “credit assessment” – the latter is based on your credit file as well as a lender’s assessment.
This is a very subtle difference, of course, that I doubt many people understand.
In my view, people have been misled badly – and this has to go down as yet another mistake by the government during this virus crisis.
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We advise a range of organisations too to help them develop and improve their services and products for private landlords. David Lawrenson, founder of LettingFocus, also writes for property portals, speaks at property events and is regularly quoted by the media.
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