Koodoo finds 74% of borrowers on mortgage payment holidays expect to have their income fully restored by the end of initial payment holiday

21st May 2020

Three quarters of the British mortgage borrowers who took a payment holiday believe they are now ready to start making regular payments again.

Three-month payment holidays were offered by lenders in response to the COVID-19 pandemic. The first wave of payment holidays are due to come to an end in June.

Data gathered by Koodoo over the past two weeks shows that 74% of mortgage borrowers that took advantage of the payment holiday expect their income will be fully restored by the end of the relevant period.

The data also shows that 30% of those who took advantage of the payment holiday did so as a precautionary measure against a feared loss of income.

Koodoo, which provides technology services to multiple lenders and price comparison websites, has implemented systems to help the industry offer payment holidays. It has gathered the data through questions asked on a mortgage payment holiday calculator, featured on sites including the Money Advice Service. The findings are based on a sample size of more than 3,500 responses.

The data comes as the government is considering an extension to payment holidays for a further three month period.

Seb McDermott, co-founder and CEO of Koodoo says:

“We have been working with our lender partners over the last 2 months to better understand the financial health of borrowers at this time - and the motivations for taking payment holidays. The findings suggest that many mortgage holders are in a better position than you may think. Payment holidays were made available at a point where people were scared about their economic prospects. Clearly, a lot of people out there have suffered greatly as a result of the lockdown. A clear majority, however, are now feeling more confident about a return to normality.

There is a real cost to borrowers of extending payment holidays, so if people can resume payments it is likely in their best interests to do so. While a 3 month payment holiday will only cost £11.21 more a month on average based on our data, over the full term of a mortgage a payment holiday costs an additional £665. Extend the holiday by another 3 months and the total additional cost is £1,332. It is vital that lenders interact with their customers to help them understand this so that only those who really need to continue to take payment holidays.”

Customers using the calculator were asked about their anticipated household financial position once the payment holiday ends and their reasons for taking a payment holiday with results as follows:

Future Income Outlook GraphReasons for Taking Out A Payment Holiday Graph

These findings imply that the majority of today’s 1.82m customers on mortgage payment holidays may be able to resume full normal payments as their payment holidays come to an end, provided that market conditions improve in line consumers’ outlooks. For most customers who took out 3 month payment holidays, this will occur in June or July 2020.

Lenders will need to look at ways of supporting the remaining 470,000 customers who do not believe that their income will be fully restored by the end of the 3 months. Options such as temporary interest-only periods, or term extensions may be an appropriate solution for the 400,000 customers expecting their incomes to be partially, but not fully restored. An extension of the payment holiday may only be required for the 70,000 borrowers not expecting to have any of their income restored.

Given many customers appear to have taken out payment holidays as a precautionary measure thus far, it will be important to make clear to customers the costs of taking a payment holiday in the long term and the other options available. It will also be crucial to gain an understanding of their financial health, to ensure they are not taking a costly break from payments without good cause.

For the average user of Koodoo’s calculator, a 3 month payment holiday would only cost £11.21 more a month in additional interest payments. However, over the full term of the mortgage, the additional cost of the payment holiday amounts to £665. With a further 3 month extension monthly payments increase to £22.70 and the additional total cost is £1,332. These numbers show the true cost of mortgage payment holidays and it is vital that lenders are able to communicate this effectively to their customers.