Borrowers who take up the mortgage repayment holiday option may be denied the chance to switch onto better rates until after their payment break ends. Borrowers can switch their mortgage to a new deal up to three months before their present deal ends without penalty. Halifax, Lloyds and Nationwide Building Society have confirmed that borrowers cannot carry out a product transfer mid-way through a repayment holiday. Brokers have reported that HSBC, Barclays and Santander are taking a similar stance. However Leeds and Coventry Building Societies have told brokers that they will allow product transfers during a payment holiday.
Borrowers have been urged to seek advice from their adviser before requesting a payment holiday to make sure that they understand the full cost implications of doing so.
While those who have already requested a product switch may be able to do so before their repayment break starts, borrowers whose deals are coming to an end in the middle of their repayment holiday may find themselves stuck on expensive standard variable rates for several months.
Even though they will not be required to make repayments during this time, the interest will be rolled up at this higher rate and added to their outstanding loans, costing them more in the long run.
At the moment it remains unclear which lenders will honour product transfers already requested before a borrower asks for a payment break. Brokers are calling for lenders to urgently provide clarity on these issues so that they can make sure their clients receive appropriate advice.
They should not make their decision in a panic and make sure that they have the fullest information from their broker or lender before going ahead. It is imperative that borrowers take professional advice before they do something that could potentially not work in their favour.
This could mean that many borrowers who act too early could well find themselves on a payment holiday that accrues interest on a more expensive variable rate which at the moment is circa 4.75%.
To put this in perspective. If you are on a rate at present of 1.65% with a mortgage of £100,000 over 20 years you would be paying £489 p.m. At 4.75% this would jump to £645. An increase of £156 p.m.