Thinking of taking a payment holiday on your mortgage? You need to know this latest information before making a decision.

Payment holidays have been offered as short term solutions to help ease current cash flow issues. But they may not be right for everyone. An interesting scenario came my way this week which highlighted an unexpected longer term problem.

As the owner of a finance company that’s been in business for over 15 years you would think I’d come across pretty much every scenario.

Yes, we deal with mortgages for first time buyers through to complex financial structures in the commercial sector, however we are all currently in unchartered territory.

It may sound like good Entrepreneurial advice if lenders are offering a 3 month payment break to keep cash flow strong.

But before any decision is made, there needs to be the right thinking, the right planning and the right financial advice sought first.

After being furloughed like many other people and with the current uncertainty my client decided to take the 3 month payment break from his lender, expecting to go back to work as normal.

He then rang us to discuss releasing equity out of his house for a buy to let purchase.

And here is the problem. 

After speaking with our Business Development Manager at his lender (a high street bank) we discovered that they are still considering how they will treat furloughed workers who have taken a payment break, when they want to change their mortgage or apply for additional borrowing in the future. 

The client, through no fault of his own has applied prudence to his current situation yet his plans for the future of becoming more financially free could be put on hold.

Applying for a payment break then wanting to take equity out or remortgaging may be interpreted by the underwriter as a conflict of interest. In effect, the client is saying they need help financially with the payment break, yet they also want to release equity.

In this instance, the payment holiday may not have been the right decision for what this client wants to achieve long term.

Remember, lenders know all of our details, regardless of whether the payment break is taken out with that particular lender or not.

So we’re still awaiting the decision. I’m told they may assess the application based on the furloughed wage (a fraction of the previous one) but then it may still be turned down due to the payment break.

You might be thinking, but I need the payment break now, cashflow is a major issue. Then that may be the right thing to do. 

But if you’re thinking longer term, of taking advantage of low rates and some of the opportunities that will be around by taking a further advance on your mortgage and purchasing a buy to let property, then it's always worth seeking the right information and advice first.

#furloughed # paymentbreak #additionalborrowing

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