Laura Suter, personal finance analyst at investment platform AJ Bell, comments on the FCA’s proposal that mortgage holidays will be extended:
“The three-month extension of mortgage holidays will be welcome relief for those households struggling with a fall in income and uncertain job prospects during the current crisis. Already one in seven mortgage holders have taken a break on their mortgage*, currently giving them a three-month period where they don’t have to make payments.
“However, it should be made much clearer to mortgage holders how much this mortgage holiday will cost them in the long run, particularly now it’s being extended until the end of October. While you don’t make the payment, you do still accrue the interest on the mortgage, which adds up over time. Interest rates being at record lows helps to reduce this cost, but if you’re on a higher mortgage interest rate, have a lot of borrowing or only have a short time until your mortgage term ends you could face a large hike in costs.
“Based on the average mortgage in the country UK banks were already set to make more than £800m more in additional interest** by people taking a mortgage holiday and that will leap up now the period has been extended.
“While the break in payments will be a lifeline for some people, they should research all the options first, including extending their term to reduce monthly payments, seeing if they can switch to a lower rate or switching to interest-only for a period.”
*UK Finance figures: https://www.ukfinance.org.uk/press/press-releases/lenders-grant-1-6-million-payment-holidays-to-mortgage-holders
**Based on the average mortgage loan size of £132,128 and the average monthly repayment of £775, which equates to a cost over a three-month mortgage deferral of £508. Multiplied by the 1.6m people who have taken a mortgage holiday = £812m additional interest.
