If Covid has left your finances in a state your aren't alone, could re-mortgaging be the answer to getting things back on track?
If the past few months have left debts creeping up, the news of a national lockdown was probably the news you’ve been dreading. So how should you approach your mortgage in the current environment? Here’s some advice…
If you can keep paying your mortgage, do so
The simple rule of thumb right now is that, whilst there is some help available from lenders, you should only take it if you really need it. The government asked lenders to ensure that taking a mortgage payment holiday wouldn’t affect credit ratings, and lenders agreed. But there is some suggestion that taking a break could affect you when you come to re-mortgaging. That’s especially true if you’re planning on re-mortgaging soon. So if you can pay, pay
Take a payment holiday if you need it*
You can usually manage your mortgage payments perfectly well, but perhaps you’ve been furloughed or work has dipped over the past few months and you need a break to keep things on track (and keep mounting debts at bay). Now may be the time to consider a payment holiday.
All lenders are offering holidays and the news of the second lockdown also brought news that the arrangement has been extended for a further six months. Once the holiday is over, your payments will be recalculated over the remaining term – so your monthly payment will go up. If you haven’t already had six months of holiday, you can ask for them now (usually in two blocks of three). If you don’t need a full holiday you can ask for fewer months, or you can take the full holiday and pay off an amount you can afford each month.
*But, and this is really important, there’s an issue with payment holidays and it all depends on your circumstances. If you know your current change in circumstances is temporary and things will be back to normal(ish) soon, a holiday may work for you assuming you can resume payments at the increased rate.
If, on the other hand, you already suspect that you won’t be able to pay the full monthly mortgage repayment come the end of the holiday, then taking the break may not be the best solution.
That’s because a payment holiday won’t bring your payments down for the long term – it will put them up. But a re-mortgage could be the answer, and help you put a stop to rising debts.
There’s lots to recommend re-mortgaging right now. If you are struggling to meet your outgoings, re-mortgaging could help you by:
Reducing your monthly mortgage payment
Potentially reducing the interest you pay on your mortgage, with rates in some cases now below 1.5%
Spreading payments over a longer term
Allowing you to consolidate debts as part of your mortgage, cutting the amount you pay towards those debts each month and possibly reducing the interest you pay on them (especially if they are expensive debts such as credit cards and catalogues)
Will lenders agree to a re-mortgage?
This is where the payment holiday issue can come into play. Any lender is going to want to know that you can afford your repayments. A recent payment holiday could increase the level of lender doubt. Even if it doesn’t affect your overall chances of approval, it might mean you can’t access the very lowest rates.
On the positive side, lenders are offering good rates on mortgages with a loan to value (LTV) of 85% or less (that is, your mortgage is at or below 85% of the value of the property). With house prices shooting up over the past year, most homeowners have found their LTV improving, which should make re-mortgaging easier.
What if I’ve lost my job?
Mortgage lenders won’t usually agree a mortgage where you don’t currently have an income. If you’re struggling to pay your mortgage and have already had your six month payment holiday the FCA is advising homeowners to talk to their lender about a tailored support plan.
Should I re-mortgage with my current lender?
Not without checking the rest of the market first. Often, people assume that, because they already have a mortgage with a lender, they’ll have some sort of advantage in the application process. But that’s not the case – every mortgage application is taken as a fresh start and it doesn’t matter whether you’ve been with a lender for 15 years or five minutes.
It’s also worth remembering that our independent mortgage advisors can access rates the general public can’t. So even if your current lender is offering what looks like a great deal, the chances are we’ll be able to better it.
To find out whether re-mortgaging could work for you – and to increase your chances of being accepted for the lowest possible interest rate, talk to us.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage