The Bank of England slashed interest rates to 0.1% on Thursday in a bid to shore up the economy, but despite rock bottom rates many homeowners are struggling to pay their mortgages.
Thousands of people face either a big drop in income or the prospect of losing their jobs altogether thanks to the coronavirus pandemic, making it difficult to meet mortgage payments.
Here’s what you need to know if you’re worried about being able to pay your mortgage.
Will my mortgage costs fall following latest base rate cuts?
If you’re on a tracker mortgage your rate usually moves in line with changes in the Bank of England base rate. However, many tracker deals have a level below which they cannot fall, so you might not necessarily benefit from the latest cut. Check with your lender if you’re not sure.
If you’re on any other type of variable rate mortgage, it will be up to your mortgage provider to decide whether to pass the cut on.
Homeowners with fixed rate mortgages won’t see any changes to their monthly payments.
I’m going to find it hard to pay my mortgage – what are my options?
The Government has announced that homeowners who are unable to pay their mortgages because they’ve lost their jobs, or their income has fallen, can ask their lender for a three-month payment holiday.
During this time, they won’t have to make mortgage repayments. This doesn’t mean that the lender or the government foots the bill, however. Your payments are only being deferred rather than made on your behalf. As a result, your mortgage term will usually be extended by three months after your payment holiday ends.
Alternatively, you may be able to stick to the same mortgage term but make higher monthly repayments to make up for the payments you missed.
Can anyone get a mortgage holiday?
No, you’ll only be able to take a mortgage payment holiday if you’re up to date with all your mortgage repayments so far, so if you’ve missed any this won’t be an option.
That doesn’t mean that your lender won’t be able to help though. Get in touch with them as soon as possible and see how you might be able to make repayments more affordable. For example, they might be able to move you to a cheaper rate or extend your mortgage term to reduce your monthly payments.
Should I cancel my mortgage direct debit if I can’t pay?
Never do this without speaking to your lender first as stopping your payments could impact on your credit file and make it harder for you to borrow in future.
Rob Griffiths, director at the Mortgage Market Alliance, said: “we’ve heard of borrowers being told to cancel their mortgage direct debits immediately before they speak to their lender – we would seriously urge people not to do this.
“Even though borrowers might think time is of the essence, it is better to secure a formal agreement with the lender than act without it.”