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Batten down the hatches

7th April 2020

The current environment is best responded to with caution.  The truth of the matter is no one knows how long this will last for, we are in completely unknown territory.  We don’t even know what is actually going on, this is further compounded by both disinformation and misinformation.

All you can do is manage the situation with the tools currently at your disposal.  There are two things which should be priority, your health which of course is number one.  And your wealth.  In this article we shall deal with the less important of the two, from a cash flow perspective.

There are various tools which have been offered to us.  One tool is the three month mortgage ‘payment holiday’ offered by mortgage lenders. A payment holiday means you agree with your lender that you will not have to make mortgage payments for a set amount of time.  This is only a deferment though, you will still owe the amounts that you don’t pay as a result of the payment holiday.  Interest will continue to be charged on the amount you owe.

I believe this should be applied for with immediate effect, and without too much thought, even though it may not be immediately required.  This could be a life saver in times to come.

The lender should be able to grant you a three month payment holiday on your BTL mortgage payments as well.  Your tenants may not be in a position to pay their rent, and therefore you could potentially have an issue.

It is important to understand that at the end of the payment holiday, you will have to make up the missed payments. 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, assuming it’s repayment. Your lender will be able to explain to you what options it offers.

If at the end of this period you discover everything was fine and you did not require the payment holiday, then you should just be able to make payments up in a lump sum.

If you read your mortgage offer, you will probably discover your mortgage agreement will allow you to make an overpayment of 10% of your outstanding mortgage amount per annum, without penalty.  In this scenario, you can overpay and bring your account up to date, should you wish to.

Please read this FCA website link, which provides more information and is continually being updated:  https://www.fca.org.uk/consumers/mortgages-coronavirus-consumers

During this period, the government has also extended rights to tenants:

  • Emergency legislation to suspend new evictions from social or private rented accommodation while this national emergency is taking place
  • No new possession proceedings through applications to the court to start during the crisis

As this is a continually changing landscape, you should visit this government website link for up to date information: https://www.gov.uk/government/news/complete-ban-on-evictions-and-additional-protection-for-renters

Again, it is important to understand, this is not a rent free period.  It’s simply a deferment, which means the account will need to be brought up to date at a future point in time by the tenant.

So, although these payment holidays are actually payment deferments, and do need to be made up, they do provide a means to assist with keeping your cash flow in the positive.

Suresh Vagjiani

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