Nationwide: customers should agree mortgage payment holiday and not cancel direct debit
The building society said that while most customers have contacted it to agree a three-month mortgage payment holiday, some members have cancelled their direct debit first.
Ordinarily, cancelling a direct debit set up to pay your mortgage would have a negative effect on your credit rating.
However, Nationwide has confirmed it is working with customers to “re-instate the direct debit” and to ensure their credit files aren’t adversely impacted.
A spokesperson, said: “We have always had that process, because sometimes people do accidentally cancel a direct debit. However, if you cancel your direct debit instead of arranging a payment holiday and don’t speak to us then your credit file could be impacted as Nationwide would still be going to take the payment as normal.”
The mutual added that where possible, members should apply online for a payment holiday to keep phone lines free for vulnerable customers.
It’s currently taking around seven days for a mortgage payment holiday to be arranged. The direct debit will automatically pause, so there’s no need for people to cancel it. This allows payments to resume as normal once the payment holiday ends.
Three-month mortgage payment holiday
Last month, the government announced mortgage lenders will provide customers with a three- month payment holiday in a bid to support financial security during the coronavirus pandemic.
The mortgage repayment is deferred but the debt isn’t written off and interest will still accrue for the period.
So far, over 1.6 million payment holidays have been agreed with customers, with one in seven mortgages subject to a payment holiday, latest data from trade body UK Finance revealed.
It said customers shouldn’t cancel direct debits without contacting the lender first as cancellation isn’t a payment holiday and will be counted as a missed payment. This could show up in credit files and may impact customers’ ability to remortgage in the future.
Typically the bank will automatically suspend payments once the mortgage/payment holiday has been approved and they will be reinstated automatically once the mortgage holiday has come to an end.
However, for those who pay by standing order, the responsibility is on the customer to cancel the payment once a mortgage holiday has been approved and then reinstate them once the holidays has come to an end – though the amount will need to be adjusted accordingly.
Free credit report provider Credit Karma UK said that as applications for a payment holiday can take a week, customers need to think ahead in order to avoid unauthorised missed payments.
Its research suggested more than three million Brits have missed regular payments already because of coronavirus disruption and nearly five million expect to do so.
Akansha Nath of Credit Karma said: “Credit reporting agencies have agreed that any consumer using an ‘emergency payment freeze’ for those affected by coronavirus won’t see their credit score impacted. So for those in financial distress it’s a key lifeline. But these arrangements are rarely put in place overnight.
“You’ll need evidence that your repayment holiday has been approved by your lender, and this can take time. Borrowers should try to engage in a dialogue with their lender as soon as they’re concerned that they may miss a payment, as defaulting will have an impact on your score.”
Is a mortgage payment holiday right for you?
Aman Johal, lawyer and director of consumer action law firm, Your Lawyers, said lenders need to be clear in their advice to customers about what to do and how a mortgage holiday can affect them in the long-term, and whether customers need to cancel direct debits and standing orders or leave them in place.
He said: “It may be the case that money will not be taken during that period or money may be credited back. Customers may also need to wait until the next payment due period before the holiday takes effect, and advice should be issued for when to cancel a direct debit or a standing order if that is the required action.
“Payment holidays may not be the right fit for everyone. Mortgage customers should check with their lender for information and support, as payment holidays are only recommended when it’s essential. The money must still be paid back at a later stage and the mortgage companies may continue to charge interest during the holiday, which can increase the overall cost of the loan.”
Below are details from the major lenders about their mortgage payment holidays:
The easiest way to apply for a mortgage payment holiday is online at Barclays. Once agreed (customers will receive a receipt SMS and then confirmation is issued within 48 hours), direct debit payment instructions are suspended and reactivated at the end of the payment holiday.
Where customers pay by standing order, they will need to instruct their bank, just as they would do when rates are adjusted and a change is necessary.
Customers can request a payment holiday online at HSBC. it can take up to seven days for a payment holiday to be implemented. However, where the customer’s payment is due sooner than this, they should contact HSBC so that it can aim to have the payment holiday in place ahead of the payment due date.
HSBC will suspend the customer’s direct debit and it will automatically resume after the holiday. A letter will be issued in advance to customers confirming when the payments will restart and their options.
HSBC said it has seen instances where customer’s have cancelled their direct debit and they will need to reinstate this. It will be contacting customers to arrange for this to be reinstated.
Customers will then receive a text message in three-five days to let them know if their request has been accepted.
When a payment holiday is taken, the monthly payment will be calculated when it ends on the new balance and for repayment mortgages, the payments which haven’t been made will be spread over the remaining mortgage term which means the payment will increase.
If a customer’s next mortgage payment is due in the next 10 working days, their payment holiday may not start until the following month. They will receive confirmation via text of the start date of their payment holiday.
If customers pay by direct debit, they don’t need to take any further action as Lloyds will automatically suspend and reinstate the direct debit when the payment holiday comes to an end.
If you pay your mortgage via another method, then once Lloyds has confirmed the payment holiday has been approved, customers must cancel any existing payment arrangements, such as a standing order.
Once the payment holiday has ended, customers will need to reinstate the payment method. Lloyds will confirm any new payment amount in writing before any money is taken after the payment holiday ends.
RBS Group (including NatWest and Ulster Bank)
Customers should apply online and after an application is submitted, customers will receive an email within seven days to confirm when the payment holiday will take effect. It will also include an estimate of what the mortgage payment will increase to after the end of the holiday period.
However, if a payment is due in the next 14 days, it may not be able to amend this payment. This will be confirmed after the bank has processed the request.
Payments will be resumed automatically so customers don’t need to do anything.
Customers can apply for a mortgage payment holiday using its online form. But for customers who don’t have internet access, or have less than ten days until their next mortgage payment is due to be taken should call Santander on 0800 023 4603.
Once a payment holiday is in place, a customer’s direct debit will be automatically suspended. They should not cancel their direct debit as this could prevent the payments from restarting at the end of the payment holiday.
Once the payment holiday is finished, payments will automatically resume so customers won’t need to do anything.
Santander adds that where customers may have cancelled their direct debit, they should get in contact to avoid any adverse effects on their credit file.
Customers can apply online and TSB recommends customers give at least 10 working days’ notice in order to get approval and for the payment holiday to be set up.
TSB will write to customers two weeks before the end of the payment holiday to confirm the new amount.