Money and me: I’ve been furloughed but partner hasn’t – is mortgage holiday right for us?

The coronavirus crisis has had a devastating impact across the globe. Sadly, hundreds of thousands of people have died from COVID-19, with the government reporting the death toll for the virus in the UK now having reached more than 40,000. The pandemic has had a financial impact too – from unemployment to pay cuts, millions have seen their income affected due to the outbreak.

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New data from the Treasury, which was published on Tuesday this week, showed that as of midnight on June 14, 9.1 million people had been placed on furlough via the Coronavirus Job Retention Scheme.

The scheme, which is often referred to as the furlough scheme, was launched in March, and has seen the government paying 80 percent of furloughed employees’ wages, up to £2,500 per month.

In this week’s instalment of Money and me, financial planners take a look at the case of two homeowners – a furloughed worker and their partner – who are unsure about whether to take a mortgage holiday or to fall back on their savings in order to meet their financial commitments.

I have been furloughed, and while my partner hasn’t, we’ve seen our total monthly income change. We’re homeowners and wonder whether we should take a mortgage holiday. We do have some savings we could rely on but we don’t know whether we’d be better to keep them in our savings account, so they can earn interest.

Express.co.uk has contacted a number of expert financial planners, who have this week shared their perspective on the particular matter.

Victoria Hicks, group director at The City & Capital Group, told Express.co.uk: “While the payment holiday can seem like an attractive option, it’s important to remember that the debt isn’t being reduced but being rolled over to a later date – and still accruing interest.

“Therefore, it’s more of a differing strategy for those who really need the grace period.

“If you’re still receiving part of your wage and your partner a full salary, then it’s best to try and keep up the payments if you can.

“While you can draw a little from savings you wouldn’t want to deplete your ‘emergency fund’, therefore if you are finding your savings pot is reducing significantly you should consider taking up the payment holiday.

“If you do choose to draw on savings though, try to maintain six months’ worth of outgoings, in case you need the cash at short notice.

“Now may also be the time to review your household expenditure, to see whether you can make up the shortfall elsewhere.

“Review your utility bills, subscriptions and non-essential spend, as well as taking a look at whether your current mortgage provider is actually the best one for you.

“If you are not tied into a deal, you might see some big savings.”

David Macdonald, founder of financial advisory firm, The Path, said: “In this situation, I would advise against taking a mortgage holiday if possible.

“Otherwise late interest payments, otherwise known as arrears, could mount up and before you know it, you have interest-upon-interest.

“And while new rules may allow it, many mortgage lenders would mark this use of a mortgage holiday down negatively as it indicates the possibility of financial ‘stress’.

“This could then impact your credit rating or mortgage rates in the future.

“Yes, taking a mortgage holiday would prevent depleting savings in tax-efficient structures.

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“But these days, tax-free allowances on interest, dividend income and capital gains are very generous so I would advise continuing with mortgage payments if feasible.”

Sarah Lord, chief client officer at wealth manager Succession Wealth, also shared her perspective.

She told Express.co.uk: “Payment holidays are designed to help you when you may experience payment difficulties – in this case, because of the coronavirus situation. Under the Government’s new policy, you can apply for a payment holiday of up to three months.

“It’s important to remember that a mortgage holiday is a temporary break from your mortgage payments, to help you through these uncertain times. You still owe the amounts that you don’t pay as a result of the payment holiday, and interest continues to be charged on the amount you owe.

“This means that, at the end of the payment holiday, you’ll be required to make up the missed mortgage payments and any additional interest.

“There will be various options for doing this, for example, by increasing your monthly payments slightly, or by adding a short extension to your term.

“The majority of the main mortgage lenders have committed to this and are offering payment holidays to borrowers who are experiencing, or reasonably expect to experience, payment difficulties because of coronavirus.

“Some lenders may consider that another option is more appropriate for the borrower’s circumstances, and where it is in their interest, which can be discussed with the lender. You should not apply for a mortgage payment holiday if you are not experiencing or do not reasonably expect to experience payment difficulties and this is the key factor.

“If you are not experiencing difficulties in making the payments, then applying for a mortgage holiday may not be the right course of action and instead topping up your requirements from your cash savings could well be.

“However, it is important to bear in mind that it is good practice, as far as possible, to maintain an emergency fund of cash for unexpected expenditure.

“Your current cash savings need to be considered in the context of the difficulties you may experience with paying your mortgage, as well as other cash requirements you may have in coming months.

“It is important to bear in mind that a payment holiday is one option that a mortgage lender can offer. You don’t need to undergo an affordability assessment, but if you’re willing to do so, then your mortgage lender may offer you more tailored support.”

The financial planner went on to highlight some other options which borrowers may want to think about.

She said: “Some of the options available could include:

  • To move your mortgage to interest-only payments for a period
  • To defer your interest payments for a period
  • To extend your mortgage term (reducing your monthly payments)
  • To add the deferred payments to the overall amount you owe and spread this over the remaining mortgage term.

“When the three-month mortgage payment holiday policy was announced, understandably some mortgage borrowers were concerned about the effect a payment holiday would have on their credit report.

“The three credit reference agencies Experian, Equifax and TransUnion have now agreed to protect the scores of those affected by utilising this mortgage payment deferral option so if you decide to make use of this option then your credit score would not be adversely affected.”

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