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Homeowners who rushed to take a mortgage payment holiday have been warned they could pay thousands of pounds more for their loan.
As the coronavirus outbreak took hold, the Government announced that all mortgage lenders would be required to offer a three-month payment break to customers who said they were in financial difficulty.
Huge numbers have taken advantage of the payment break. Lloyds Banking Group, Britain’s biggest mortgage lender, said that more than 300,000 payment holidays have already been granted.
However, experts have warned that many borrowers have requested a payment break without understanding the repercussions. Even though customers are given a break from payments, the amount owed to the bank does not change and interest continues to accrue during the holiday.
This could leave homeowners paying much more for their mortgage in the long run. Analysis by Private Finance, a mortgage broker, showed that a borrower with a £200,000 outstanding loan would repay £303,672 over a 20-year mortgage term, based on a typical standard variable rate of 4.5pc.
Were the borrower to take a three-month mortgage payment holiday the cost would increase by £1,966 over the 20-year term.
Chris Sykes, of Private Finance, said: “In simple terms a mortgage holiday isn’t a fun time away in Cyprus, in fact it will probably cost you the same as a holiday in Cyprus.”
Homeowners must contact their bank to agree to a payment holiday. Some mortgage lenders have expressed concern that in some cases customers have failed to do so and have instead cancelled direct debits, which would leave a black mark on their credit file.
Kate Davies, of the Intermediary Mortgage Lenders Association, a trade body, said: “A mortgage holiday is not intended to be an opportunity for homeowners to put their mortgage repayments on hold just because they can.”
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