Millions of people have taken a break from mortgage, energy, credit card and other regular bill payments in recent months, but what happens when these payment holidays come to an end?
Payment holidays were introduced earlier this year to help alleviate financial pressure on those whose incomes have been affected by coronavirus. They allowed people to take a break from their payments to provide some much needed financial breathing room. Many payment holidays were due to finish on October 31, but in many cases measures have been extended and providers have pledged to provide tailored support to those who are still struggling.
Here, we explain what happens when different types of payment holiday come to an end, and how you may be able to extend your break from payments, or arrange an affordable repayment plan if necessary.
Mortgage payment holidays
Two million homeowners have taken a break from their mortgage payments as a result of the coronavirus pandemic. If you’re struggling to pay your mortgage, you still have until 31 October to apply for a three month payment holiday.
When your mortgage payment holiday ends, your monthly payments will increase to cover the repayments you missed. Your lender will write to you before this happens to let you know the date your mortgage payments will start again and how much you’ll have to pay.
We have a mortgage payment holiday calculator to help you work out how much your mortgage payments will increase if you’ve taken a break from your payments, or if you’re planning to do so. Find out more about how mortgage payment holidays work here.
If your payment holiday is finishing soon and you are still having financial difficulties due to coronavirus, or your financial situation is newly affected, for example if you were furloughed but have just been made redundant, there may still be support available.
The city regulator the Financial Conduct Authority (FCA) has published guidance for lenders which means they must offer further short and longer-term support to those who are currently unable to pay their mortgages.
The type of support you’ll be provided with will depend on your individual circumstances, but could include your mortgage repayment term being extended to make monthly payments more manageable, or your mortgage might be restructured so that perhaps part of it will be arranged on an interest-only basis to keep costs down.
Christopher Woolard, interim chief executive at the FCA, said: “Some consumers will continue to be impacted by coronavirus in the coming months, or be impacted for the first time. Consumers in these situations will benefit from firms providing them with tailored support.
“However, it is very important that consumers who can afford to resume mortgage payments should do so for their own long-term interests and so that help can be targeted at those most in need.”
Any further support offered to mortgage customers after their mortgage payment holidays end will be recorded on credit files. This may make it harder to remortgage in future, as lenders will see that you’ve experienced difficulties keeping up with mortgage payments in the past. Mortgage holidays themselves should not be noted on credit files provided they were arranged prior to 31 October, but lenders are still likely to take them into consideration when you next remortgage.
If you want to remortgage when your payment holiday finishes, your best bet is to talk to a fee-free mortgage broker such as Fluent Mortgages or London & Country Mortgages who can research the various options that may be available to you on your behalf. They’ll also be able to advise which deals may be best for you based on your individual circumstances.
Credit cards, overdrafts and personal loans
Banks are currently offering interest-free overdrafts of up to £500 if you’ve been financially affected by coronavirus. If you’ve yet to request an interest-free overdraft, you have until 31 October 2020 to apply for one.
Similarly, you can request a three-month payment holiday if you have a credit card or personal loan and are struggling to meet your monthly payments. Payment holidays again must be requested by 31 October 2020.
When these payment holidays end, you’ll be expected to resume repayments and your lender will let you know the date your repayments will begin again. You will still have been charged interest during the payment holiday, which will have been added to your balance so that you’ll have more to pay back when your payments resume. Again, you’ll be notified how much your minimum repayments will be adjusted too.
There may, however, be ways to reduce the amount you pay each month, for example by switching to a new product charging a lower rate of interest. Research by financial website Moneyfacts.co.uk found that those with £3,000 on a credit card charging 18.9% APR could save £292 in a single year by switching to a fee-free 0% balance transfer card, such as Santander’s Everyday Credit Card Mastercard. This card has no balance transfer fee and offers a 0% introductory rate on balance transfers for 18 months. Make sure you can pay back what you owe within this period, as when it ends you’ll be charged interest at a representative 18.9% APR.
If you do make an application for a balance transfer credit card or a personal loan and it’s refused, don’t then go straight to other providers and submit more applications. Every application you make will be recorded on your credit file, so if you make several in quick succession it could look to lenders as though you’re in financial difficulty and desperately need to borrow money.
If you want to check whether your credit application is likely to be accepted, many lenders now offer online eligibility tools that can tell you how likely you are to have your application accepted without performing a full credit search that leaves a mark on your file.
If you’re unable to switch to a new product, perhaps because you’re still experiencing financial difficulties when your repayment holiday finishes, the FCA has published measures lenders should follow. These require them to provide “tailored support” after 31 October which reflect borrowers’ individual circumstances.
Some of the options lenders will be expected to offer include setting up affordable repayment arrangements, which take account of customers’ wider financial situations, waiving or cancelling interest, fees, or charges to prevent balances escalating, and not pressurising customers to repay their debts within an unreasonably short period of time. If you’re not currently in a position to be able to commit to a repayment plan, you can ask your lender if they will consider extending your payment holiday for a short period, or let them know what you can afford to pay back. If you can’t negotiate a manageable plan and feel like your debts are spiralling out of control, it’s vital that you seek help as soon as possible. Get in touch with one of the charities specialising in free debt advice such as StepChange, National Debtline and the Debt Advice Foundation. They might be able to negotiate with lenders on your behalf.
Bear in mind that any measures taken to help customers after their payment holidays have finished will be recorded on their credit reports, which could make it harder for them to borrow in future.
If you’ve taken a payment break from your energy bills, make sure you’re prepared for steeper bills when your payments resume. If you can afford to, it might be worth trying to squirrel a bit of cash away now so that you’ll be able to cover any extra costs.
According to research by comparison site Comparethemarket.com, energy customers who took a three month payment holiday and then increase their energy consumption as normal in the colder winter months could end the year with a substantial £610 debt balance.
Peter Earl, head of energy at Comparethemarket.com said: “There is mounting concern that millions of households could be facing a substantial debt balance on their energy bills at the same time as the temperature drops. A combination of lockdown and millions more people working from home has meant energy usage has shot up. Many people pay their energy bills by direct debit, set up when they first opened their account. However, if their meter reading is out of date they could be in for a substantial shock when this is finally updated to reflect their actual usage.
“As such, we highly recommend that energy customers take a reading of their gas and electric meters and submit it to their provider now. One way that households can substantially reduce the amount they pay for their energy is to switch supplier. All too often, millions of households roll over onto their supplier’s standard variable tariff when they could save hundreds of pounds by switching to a competitively priced one or two-year fixed-rate tariff.”
See if you can reduce your energy bills with our energy comparison tool. Over half of Rest Less users (51%) who have switched using the tool have cut energy costs by an average of £167 a year, and one in 10 have saved £340 a year.
Energy regulator Ofgem has just announced that energy suppliers must take steps to help prepayment meter customers who can’t afford to top up their meters. It says that from 15 December, providers must provide credit to those who are struggling to top up their energy meters, are self-isolating, or who have difficulties with mobility, so that they aren’t left without an energy supply.
Customers on credit meters who can’t pay their bills will also benefit from additional support. From 15 December, suppliers will be required to put them on “sustainable and reasonable” repayment plans, which will be worked out based on the customer’s individual circumstances.
These rules will only apply to energy customers in England, Wales and Scotland, as Ofgem doesn’t regulate the energy market in Northern Ireland.
Philippa Pickford, director of retail at Ofgem, said: “Suppliers have stepped up to the challenge of supporting their customers during the Covid-19 crisis, especially those in vulnerable situations.
“Customers who are struggling to pay their bills should contact their supplier as soon as possible. The extra protections we have announced today will help ensure they get some breathing space this winter.”
Don’t suffer in silence
If you know you’re going to struggle financially when any payment holidays you’ve taken come to an end, make sure you contact the providers involved as soon as possible. They will be able to explain the options available to you and hopefully will be able to arrange an affordable repayment plan with you.
If you still feel your debts are spiralling out of control and you need professional help, charities specialising in free debt advice include StepChange, National Debtline and the Debt Advice Foundation. They may be able to talk to your providers on your behalf and help you arrive at a solution that is manageable for you.
Have you taken a payment holiday from any of your bills and are you worried about how you’ll manage when it ends? We’d be interested to hear from you. Drop us an email at [email protected] or leave a comment below.