What is Forbearance and How Does it Affect Homeowners?
Estimated reading time 5 minutes
With mortgage rates causing plenty of concern for homeowners at the moment, any bit of help, support or guidance that comes is gratefully received. Such is the speed at which the rates are changing, many homeowners are contemplating a fast house sale to remove themselves from the difficulties mortgages are causing.
Just recently the UK government and the Financial Conduct Authority, alongside some of the major mortgage lenders unleashed a new wave of forbearance measures to help those finding the cost of homeownership extra difficult.
Whilst not available to all, these measures certainly give many a little peace of mind that they can continue living in their house and not be penalised by rising costs.
But what is forbearance and what does it mean for homeowners?
What is forbearance?
Forbearance is where a lender, in the case of this article, a mortgage lender, does not pursue the terms of the agreement in the case of missed payments, late payments or similar. Where normally a lender could investigate the options of repossession, add penalty charges, or other forms of penalty, forbearance measures remove this option. Instead, they give the homeowner some opportunity to reorganise their finances, weigh up alternative options and remain in their home.
Forbearance is only temporary and postpones the payments of the mortgage and must be agreed between the lender and the person paying the mortgage.
The latest government intervention gives all mortgage borrowers that are up to date with payments and hold mortgages with regulated firms but are now struggling to pay them, the chance to take advantage of some additional support.
What are the new forbearance measures for homeowners?
With the mortgage rates proving to be crippling to many, the new measures are in place to try and alleviate some of that pain for homeowners. This now means that the lenders that have agreed to support those in difficulty can present some options to homeowners that will give some short-term relief. It is thought that some 75% of lenders have agreed with these measures meaning that a large percentage of borrowers can now be supported as costs continue to rise.
The current changes mean that mortgage lenders will offer:
- A switch to interest-only payments for six months.
- An extension to the mortgage term to reduce the monthly payments. Within six months, the borrower can revert to the original mortgage terms if they prefer.
- Those reaching the end of a fixed-rate deal will be offered a chance to secure a new deal six months before the current one ends. Should a better deal appear in the run-up to the new one starting, the homeowner can apply for that right up until the new deal is scheduled to begin.
- Support to 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 having to complete an affordability check.
- Tailored support to those struggling and seek solutions that could include temporary payment deferrals, extended terms or part interest part repayment plans among other potential options.
- No forced repossessions within 12 months of a missed payment.
What do new forbearance measures mean for homeowners?
There are of course pros and cons to everything and whilst these options may give some comfort to those with a mortgage, they can also be problematic.
Adopting any of these measures, even if temporary could see the potential for higher monthly charges further down the line or even the possibility of paying back more than what would have been required before taking advantage of the forbearance measures.
Were there forbearance measures already in place?
In theory yes. Many lenders understand that problems arise for borrowers from time to time and offer measures tailored to the specific needs of the borrower. The thing is each lender does it a little differently.
These new rules though provide a little more comfort for the borrower as there are more options available from more lenders. Part of the changes also means that no impact will be made on a credit file. This provides some reassurance as existing forbearance measures do alter your credit rating.
What happens when the forbearance period ends?
The terms of these new forbearance measures are purely temporary and are available to borrowers for a period of six months. If after that, there are still difficulties in paying the mortgage, you will be offered a solution on a tailored basis. This will start to harm your credit file and could see you paying much more over the long term. It may be though, the best option available at the time to enable you to keep your house and get your finances in a better position.
Taking advantage of these measures is not for all and some people may be reluctant to do so. If you are finding that your mortgage payments are becoming too expensive and forbearance doesn’t seem like an option you want to consider, there are other alternatives.
Cash house buyers like Gaffsy can make an offer on your home allowing you to receive funds in as little as seven days, giving you the opportunity to secure a new home much more affordably. Our business model allows for an opportunity to sell your house fast without the need to pay solicitor fees or get tied up in property chains. Even better is that we buy any home, so no matter what type of house you have, where your house is located, or the condition it is in, we want to hear from you! Contact our team of property experts today and get a free cash offer so you can remove yourself from the mortgage minefield that too many are currently traversing.