Coronavirus: mortgage payment holidays have been extended
Banks and building societies have agreed to extend the mortgage payment holiday for a further three months.
Homeowners whose finances have been impacted by coronavirus can extend their mortgage payment holiday by a further three months.
Banks and building societies have agreed to extend the period during which customers do not need to make mortgage repayments beyond the initial three-month deadline.
Lenders will work with borrowers who are struggling to meet their repayments to find the best solution for them.
This includes extending the payment holiday, agreeing reduced payments, switching them to an interest-only mortgage and extending the mortgage term.
They have also agreed not to proceed with involuntary repossessions for both residential and buy-to-let mortgage customers until October 31 2020.
The news comes as the mortgage trade body UK Finance said that 1.82 million mortgages (the equivalent of one in six home loans), are now covered by the payment holiday.
Stephen Jones, chief executive of UK Finance, said:
“Mortgage lenders are committed to providing those borrowers nearing the end of their three-month payment holiday with help and flexibility in choosing the next steps which best suit their needs.”
How does a mortgage payment holiday work?
Customers whose finances have been impacted by coronavirus are allowed to take time off making mortgage repayments.
The original payment holiday was announced on 17 March and lasted for three months, but the term has now been extended by a further three months where appropriate.
But the mortgage payments are only deferred, and the interest that would have been paid is added to the outstanding debt owed.
The missed payments will need to be made up at some point in the future.
What other options are available?
Lenders have agreed to work with borrowers to find the best solution for them.
This may be a payment holiday, or they may look at other options that could better suit their circumstances.
For example, they may agree to accept reduced payments for a period of time, switch them to an interest-only mortgage, or extend their mortgage term. This would also lead to reduced monthly repayments.
But despite this flexibility, UK Finance has urged people who can afford to keep up with or resume their mortgage payments to do so.
How do I apply for a payment holiday?
If you want to apply for a mortgage holiday, go to your lender’s website and follow the link on coronavirus.
Many lenders have set up an online application process after being inundated with requests in the early days of the scheme.
If you want to take a different option, such as switching to an interest-only mortgage, you should contact your lender directly.
Use the mortgage payment holiday calculator below, powered by mortgageholiday.co.uk, to see how your monthly payments may be affected by a holiday, and to find out how to apply:
Whether you apply online or by telephone, you will need your mortgage details to hand, including your account number.
But you will not need to prove that your finances have been impacted, as lenders are allowing people to self-certify this.
Do not cancel your direct debit before the payment holiday has been agreed, as this would be classed as a missed payment and could impact your credit history.
Can anyone apply for a payment holiday?
A payment holiday is only available if you are not in mortgage arrears and have suffered only a temporary drop in your income, rather than a long-term reduction in your earnings.
If you face longer-term financial issues, an alternative solution may be more appropriate for you.
Either way, contact your lender and discuss it with them.
The fact that lenders have agreed not to pursue repossessions until after 31 October means you have some breathing space to work out a solution.
Will it impact my credit score?
Getting into mortgage arrears would normally have a negative impact on your credit score. But in light of the current exceptional circumstances, UK Finance has said lenders will make sure that borrowers’ credit scores are not affected.
As a result, if you are struggling to meet repayments it is important that you get in touch with your lender and agree to a formal payment holiday.
Top three takeaways
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Homeowners whose finances have been impacted by coronavirus can extend their mortgage payment holiday by a further three months.
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Lenders will work with borrowers who are struggling to meet their repayments to find the best solution for them, including extending the payment holiday, agreeing reduced payments, switching them to an interest-only mortgage and extending the mortgage term.
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They have also agreed not to proceed with involuntary repossessions for both residential and buy-to-let mortgage customers until 31 October 2020.
Is it time for a stamp duty holiday?
We look at previous stamp duty holiday statistics, the current regime and key benefits to answer: is it time for a stamp duty holiday?
Since April, there have been several calls for a stamp duty holiday to help revive the housing market as lockdown eases.
The physical restrictions during lockdown had a substantial impact on the market, which Zoopla has examined in the latest Cities Index and Rental Market Reports.
The opening of estate agency branches from last week is a welcomed development, allowing activity to proceed, but it makes sense that any sort of a tax cut could further help boost activity in the market.
The government will want to examine the fundamentals of any such proposals carefully.
Our calculations in April showed that housing transactions could be down by 50% this year, which could mean halving stamp duty receipts to £4 billion - assuming house prices don’t change.
How would a stamp duty holiday work?
The theory is that giving potential buyers an effective tax break (by cutting their stamp duty bill to zero), will encourage them to move home.
The ‘holiday’ aspect means there’s an impetus to act because it’s not a permanent change.
There’s an argument that this only brings forward activity that would have happened anyway. But when trying to give the economy a boost, this seems acceptable.
A stamp duty holiday is not only about helping people achieve their goals in terms of housing. It’s also about how important the housing market is to the economy as a whole.
When you move into a new home, you need to organise your finances and utilities.
The act of moving includes other services too. You may want to re-decorate, buy additional furnishings or do something with the garden. All of this supports the retail sector.
This ‘network’ effect on the economy means that the government is keen to encourage housing mobility.
Have there been stamp duty holidays in the past, and did they work?
Yes. And sometimes.
The stamp duty holiday introduced during the recession in late 1991 to 1992 was at the time when the housing market slumped (amid very high interest rates).
The stamp duty rate at that time was just 1%. The threshold for paying stamp duty was temporarily raised from £30,000 to £250,000. The average price of a home was just over £50,000.
Despite this intervention, housing transactions in 1992 were still lower than in 1991 and house prices still fell. But the likelihood is the figures would have looked far worse without a stamp duty holiday.
During the financial crisis in 2008 to 2009, another stamp duty holiday was introduced.
This holiday raised the lowest threshold for paying the 1% rate of stamp duty from £125,000 to £175,000. The rates for more expensive properties were 3% and 4%.
The average price of a home at this point was just under £175,000.
The level of transactions fell by 5% in 2009, but this came after a 44% decline in 2008. It was followed by a 3% rise in activity in 2010.
But some of this can also be attributed to price adjustments and the beginning of green shoots in the economy.
What’s the current stamp duty regime?
In 2014, the method of calculating stamp duty changed. And so did the rates at which this tax is charged (Scotland followed with changes in 2015).
This effectively cut the tax bill on homes worth up to £940,000 (which account for more than 95% of households), but cranked up the charges for more expensive properties.
In 2009, the most expensive stamp duty band was 4%.
This is now 12%, rising to 15% for some buyers and 17% for overseas buyers purchasing in England from next year.
A complete stamp duty holiday today would mean larger savings, but only for some.
First-time buyers purchasing a home in England or Northern Ireland for up to £300,000 will see no change, as they have been exempt from this property tax since 2017.
This helped around 214,000 buyers purchase a home in 2018/19.
In Scotland, first-time buyers pay no stamp duty on purchases on properties with a value of up to £175,000, while in Wales the nil-rate band for all buyers was set at £180,000 in 2018.
So, who’d benefit from a stamp duty holiday now?
Stamp duty may be payable (excluding the first-time buyer exemption) on 85% of all property transactions. But the impact of the tax is not the same across the country. This is because of the wide range in average house prices.
This is backed up by stamp duty receipts data. The data shows that homebuyers and homemovers in London and the South East paid 72% of all stamp duty receipts in 2018/19.
In other words, the average property price in London far exceeds the lowest interest-free threshold for the area.
This is further demonstrated in the stamp duty revenues received by each region.
In London, the South East and the Midlands, the proportion of sales where this tax was not payable was under 5%.
In parts of the north of England, more than 40% of sales were not liable for stamp duty.
In short, it would largely be homemovers in London, South East and parts of the Midlands who would benefit most from a stamp duty holiday.
In the most expensive markets with an international buyer base, the savings could be significant.
The evidence of past stamp duty holidays is that it can boost sales activity overall.
House prices may differ across the country, but if one part of the market starts to seize up, this affects other parts of the market and the wider economy.
The cost to the Treasury of such a move will be significant. But given the current circumstances, it’s relatively modest when compared to the £39 billion it’s costing the government to run the furlough scheme for three months.
Also, the cost of any stamp duty relief is unlikely to be completely ‘lost’. Instead, it could boost the economy as buyers redirect those funds to spending.
The positive effects of a stamp duty holiday are likely to be further improved if they’re introduced alongside other measures. For example, better access to mortgage lending and a review of Help to Buy.
Together, these factors could force the much needed ‘network effect’ of the housing market to help crank up economic activity in challenging times.
First-time buyers and key workers to get 30% discount on new homes in proposed housing scheme
First-time buyers and key workers will get 30% on new homes under the government's proposed new First Homes scheme.
First-time buyers and key workers and will be able to buy new-build homes with a 30% discount under a new scheme being proposed by the Government.
The First Homes scheme will give people in England the chance to buy a home in their local area for nearly a third less than the market price, saving them an average of nearly £100,000.
30% discount for key workers
Key workers, such as nurses, police officers, firefighters, and teachers, as well as armed forces veterans, will be given priority in this scheme.
The initiative will also be open to people in other professions.
Housing Secretary Robert Jenrick said: "I know that many who are seeking to buy their own home in their local areas have been forced out due to rising prices.
"A proportion of new homes will be made available at a 30% market discount rate - turning the dial on the dream of home ownership."
He added that the discount would be passed on when the property was sold in order to help future first-time buyers.
The Government is currently consulting on how the scheme will be delivered and no date for its introduction has yet been given.
Why is this happening?
Despite first-time buyer numbers hitting a 12-year high in 2019, stretched affordability and large deposit requirements are still preventing many people from getting onto the property ladder.
The Government has made improving the UK’s housing situation a key priority, pledging to build more than one million new homes during the current parliament in a bid to improve affordability.
The First Homes scheme is part of its commitment to help more people get onto the property ladder.
Who does it affect?
First Homes will not only reduce the amount buyers pay for their homes, but it will also reduce the size of the deposit they need to save up and make it easier for them to meet mortgage affordability requirements.
With the average new-build home costing £314,000, first-time buyers using the scheme will save an average of £94,000, while those putting down a 20% deposit will need to save £18,000 less.
The scheme aims to help people in areas of high demand, who would be unable to afford to buy a home locally without the discount.
What’s the background?
While the exact details of how the scheme will operate are still unclear, the Government has indicated that it will impose a price cap on the properties available through First Homes to ensure the initiative helps those who would benefit most from it.
The discount will be paid for through contributions that housing developers routinely provide through the planning system, which the Government said was an established mechanism for ensuring that new developments deliver benefits for local communities.
No details have been given on what criteria will be used to determine whether potential buyers are ‘local’ but armed forces personnel will be exempt from this requirement.
The next step
With the government consultation for the design of First Homes still underway, it will be some time before any developments are announced.
Meanwhile, you can prepare to buy your first property by knowing exactly how much you can afford to borrow and what lenders assess.
Stay up-to-date with First Homes developments here.
Top 3 takeaways
- First-time buyers will be able to purchase a new-build home for a 30% discount under a new scheme being proposed by the Government
- The First Homes scheme will enable first-time buyers in England to save an average of nearly £100,000
- Key workers, such as nurses, police officers, firefighters, and teachers, as well as armed forces veterans, will be given priority to take advantage of the initiative