Could Covid-19 soon become a mortgage arrears crisis?
The issue of rent arrears and tenants being evicted for accruing them has dominated news headlines in recent months, but little attention has been given to homeowners and their mortgages
Why is this? Are homeowners not at risk during this financial crisis?
Presently, the answer is no, they haven’t been to date – but that could all be about to change.
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Mortgage payment breaks have been a lifeline for homeowners
Homeowners have been relatively safe up until now because most mortgage providers have been quick to offer additional support in the form of payment breaks. Banks and other lenders have also been instructed by the Financial Conduct Authority to consider additional ways to support their mortgage customers.
The UK government’s furlough scheme has also ensured many people have been able to continue paying their mortgages in full.
This is not the same for many tenants.
Some landlords have offered payment breaks, but many tenants have struggled to pay their rent as they have only been receiving 80% of their normal salary. Others have had to apply for Universal Credit, which can help with rent payments, but often doesn’t cover the full amount.
Mortgage payment breaks, on the other hand, have at least covered the full cost of the mortgage, meaning some homeowners have benefited over the last few months, receiving 80% of their wages, while being able to enjoy a bit of financial breathing space.
However, with many banks now beginning to withdraw offers of payment breaks and the UK government seeking to end its financial support schemes, this won’t last.
Will mortgage arrears overtake rent arrears as the most pressing problem?
In the UK, if you are not able to pay your rent, you can seek help with your housing costs by applying for Universal Credit.
However, if you are a homeowner, there’s no such support available for mortgages through Universal Credit until you’ve been receiving it for 39 weeks (nine months). Even then when you get help, it’s only made available if you have no earnings at all. This is unlike tenants, who can still receive support with their rent if they are working part-time and receiving Universal Credit. Homeowners, on the other hand, receive nothing.
In addition to that, the support that is available only pays the interest on the mortgage up to a rate of 2.61% on the first £200,000. If your mortgage is for a higher amount, or your interest rate is higher, no extra support is available, so you have to make up the rest.
Worst of all, the support that is available only comes in the form of a loan and is secured against your home.
What this means is that this financial crisis could quickly become more about homeowners and mortgage arrears and not just tenants and rent arrears. Focus could quickly shift from tenants who are at risk of eviction to homeowners who are at risk of repossession.
Has it always been this way?
No. After the last financial crisis, the UK government was concerned the number of repossessions would rise and changed the Support for Mortgage Interest Scheme so that help was available after 13, not 39 weeks. Help also came in the form of a benefit that did not have to be repaid and the average mortgage back then was significantly less than it is today, so more people were able to access the scheme.
It may be that the UK government will introduce similar measures again and some large anti-poverty and homelessness charities have called on them to do so, but so far Chancellor Rishi Sunak has not made any announcements.
What should you do if you can’t pay your mortgage?
If you find you can’t pay your mortgage, the key thing is not to ignore it.
Mortgage providers are under a duty to treat all their customers fairly and the Financial Conduct Authority has said that even after the current payment breaks come to an end, lenders should still consider whether a further payment break is appropriate beyond October for some customers.
The other important thing is to prioritise your debts. Monthly mortgage payments and arrears are priorities and come before any credit cards, personal loans and overdrafts.
Where you have these other types of debts and are struggling with your mortgage, you should seek expert debt advice on your options.
If you want to speak with a Creditfix money advisor for free, confidential advice, call 0808 253 3487, or chat with one of our online team.Get free advice