With mortgage rates worrying homeowners, any support or guidance that comes is appreciated. The speed at which rates are changing has many homeowners considering a fast house sale to avoid the difficulties of mortgages.
Recently, the UK government together with the Financial Conduct Authority and major mortgage lenders implemented forbearance measures to help those struggling with homeownership costs. These measures are not available to everyone, but they can give many relief from increasing costs.
But what is forbearance, and what does it mean for homeowners?
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What is forbearance?
Forbearance is when a mortgage lender does not pursue the terms of the agreement if payments are missed, late, or similar. Normally, the lender might look into repossessing the property, adding penalty fees, or other penalties.
However, forbearance removes these options and instead gives the homeowner a chance to get their finances in order, consider other options, and stay in their home.
This is only a temporary solution, postponing mortgage payments with the agreement of both the lender and the borrower. Recently, the government has provided additional support to those mortgage holders who aren’t up to date with payments.
What are forbearance measures?
With the mortgage rates crippling many, new measures have been implemented to try and offer some relief to homeowners. Around 75% of lenders have agreed to these measures, meaning a large proportion of borrowers can now be supported as costs continue to rise.
The current changes mean that mortgage lenders can offer:
- Switching to interest-only payments for six months.
- Extending the mortgage term to reduce the monthly payments. In six months, borrowers can revert to the original mortgage terms if they prefer.
- Those nearing the end of a fixed-rate deal can secure a new deal six months before their current one ends. If a better deal appears in the run-up to the new one, the homeowner can apply for it until the new deal is due to start.
- Supporting those on existing deals and up-to-date with their payments to switch to a new deal at the end of their fixed-rate term without needing to complete an affordability check.
- Tailored support to those struggling, with potential solutions such as temporary payment deferrals, extended terms or part interest part repayment plans.
- No forced repossessions within 12 months of a missed payment.
These measures have been put in place to help homeowners, with lenders offering various options to provide short-term relief. With around 75% of lenders agreeing to these changes, a large number of borrowers can now receive the assistance they need.
What are the benefits of forbearance?
Forbearance gives you the breathing space to get your affairs your order and stops the lender from starting repossession proceedings.
There are both advantages and disadvantages to everything, and while these options may provide some relief to those with a mortgage, they can also cause issues.
If any of these measures, even if only temporarily, are taken, there is the potential for higher monthly payments later on, or even having to pay back more than one would have originally needed to before taking advantage of the forbearance measures.
Were there forbearance measures already in place?
In theory, it is possible. Many lenders understand that unexpected problems can arise and offer solutions that are tailored to the individual’s needs. However, lenders may approach this differently.
The new rules provide more options for borrowers and extra peace of mind since they will not affect their credit score. This is an improvement from existing forbearance measures, which do impact credit ratings.
What happens when the forbearance period ends?
After the forbearance period ends, you are required to pay the missed amount. There are different options available to choose from. One option is to pay the entire amount at once in a reinstatement. Another option is to bring your mortgage up to date over time, usually 12 months, in a repayment plan.
The temporary forbearance measures are available for six months. After that, you may be presented with a tailored solution if you are still facing difficulty in repaying the interest only mortgage.
However, this could adversely affect your credit score and result in you paying more in the long run.
Taking advantage of these measures may not be suitable for everyone, so there are other options available.
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