Is mortgage payment holiday a benefit or loss to borrowers?

hellojohn8doe7

Hi - genuine concern and not ranting and hence looking for constructive discussion.

Mortgage payment holiday as announced will definitely help those borrowers who can no longer afford their monthly payments due to the economic and current situation.

However this will only provide a temporary relief for 3 months and will come up with a big interest bill 3 months later. Because interest will continue to accrue and since no payment is being made, the outstanding loan is not reducing month on month and hence interest accumulated is going up like crazy in these difficult times.

On the contrary - if the government offers that people can leave their fixed rate mortgage without penalty (ERC) and switch to a cheaper available deal - due to recent rate cut by bank of england, then that will have an actual benefit to the people. Monthly payment goes down and people can be mortgage free a bit early. Also these people (currently on fixed rate) will get benefit of rate cut rather than just suffering a loss on savings interest 

Any thoughts?

davidmcn

Paying potentially thousands of ERC for each mortgage account affected might not be seen as particularly efficient use of public funds though. Plenty of people are going to have bigger problems than just "not being mortgage free".

[Deleted User]

The governments goal isn't to make people better off in the long run.  Its to give them breathing room whilst things get back on track.   If it looks like it will be protracted then i expect them to offer further assistant to help people tread water rather than drown

Thrugelmir

Guess your proposal comes from a perspective of self interest. As opposed to a broader measure that assists all people that find themselves in financial difficulty. Personally I'd prefer the Government to legislate against the high price of Apple phone contracts. Then people would have more cash in their pockets every month to spend on essentials. 

amnblog

Encouraging borrowers to leave fixed rates to go onto base rate trackers is not something to promote.

NewShadow

hellojohn8doe7 said:

If the government offers that people can leave their fixed rate mortgage without penalty (ERC) and switch to a cheaper available deal - due to recent rate cut by bank of england, then that will have an actual benefit to the people. Monthly payment goes down and people can be mortgage free a bit early. Also these people (currently on fixed rate) will get benefit of rate cut rather than just suffering a loss on savings interest 

The ERC of your deal is a contractual matter between you and your lender - as has been alluded to, the Government cannot simply release you from this obligation - if the Government were to offer you this option, the Government would then be liable to compensate the lenders for their losses... which would likely cost many millions/billions of pounds. 

What the Government has offered is a breathing space from the immediate crisis - probably with a substantial compensation/future favours agreed with the banks, in combination with some strong-arming reminding them of their not-too-long-ago bailout/civic duty... 

Given the crisis is hitting the whole nation - and is likely to result in a further economic crisis for an extended period even after the pandemic is 'controlled' - what argument are you putting forward for mortgage holders with fixed rate mortgages  to get such a costly support package which doesn't only protect them from the immediate impact of the crisis, but puts them in a materially better position than they likely would have been if the pandemic had never occurred? 

hellojohn8doe7

amnblog said:

Encouraging borrowers to leave fixed rates to go onto base rate trackers is not something to promote.

Not encouraging to move to base rate - but to another fixed term deal.

Instead of government paying for ERC, banks/lenders could consider waiving off ERC if one were to switch the fixed term deal. So the borrower stays with same bank but move to a different fixed rate product. 

amnblog

The Lenders cannot do that as they have the money on the current fixed deal committed for a period of time and they need to pay their costs at a set rate.

Thrugelmir

hellojohn8doe7 said:

amnblog said:

Encouraging borrowers to leave fixed rates to go onto base rate trackers is not something to promote.

Not encouraging to move to base rate - but to another fixed term deal.

Instead of government paying for ERC, banks/lenders could consider waiving off ERC if one were to switch the fixed term deal. So the borrower stays with same bank but move to a different fixed rate product. 

To recover the huge amount of lost money , fixed interest rate products would rise to compensate. 
There's no giveaways for a select few. 

csgohan4

cake and eat it seems for some. bigger fish to fry than 3 months payment holiday. What about job losses...