uSwitch.com believes collectively this could push their monthly repayments up by £54m and increase their total interest by £7.2bn.
Despite the government’s recent announcement to offer cash strapped mortgage customers a two-year freeze on interest repayments, 729,054 people claim they are considering or have already taken a holiday because they are expecting to be made redundant.
With 1,522 people currently becoming unemployed every day, uSwitch.com says this problem is only going to get worse.
Following a 12 month holiday, a mortgage for £150,000 will increase by more than £10,000 and the monthly repayments will go up by £80, claims uSwitch.com – this means that consumers with low levels of equity in their homes could find themselves struggling if they need to remortgage.
This may provide a quick fix for these consumers, but with banking experts predicting further house price falls of up to 15% in 2009, this will bring the average house price down from £158,442 to £134,675. For borrowers that have anything less than 25% equity in their property, the costs incurred from the payment holiday coupled with falling property prices could push them into negative equity believes uSwitch.com.
Louise Bond, personal finance manager, uSwitch.com says: “Mortgage payment holidays are a great facility for consumers that are looking to take a short break in order to get married, have a baby or generally chase their dreams.
“However, in this climate the facility should not be used by people that have been struggling to pay their mortgage or keep up with general living expenses for a long period of time. A holiday will not make the underlying financial issues disappear. In fact, both the repayments and the debt will actually go up after the holiday and, if anything, it could actually make the problem worse.
“These holidays are simply an agreed deferment but it is by no means a ‘freebie’ and the interest and the repayments still have to be made at some point.
“Just last month, two leading mortgage providers, Nationwide and Halifax, did the right thing and reviewed their policies on payment holidays. Halifax no longer offers this facility to those who have been made redundant and Nationwide is considering a new rule that will only allow consumers with at least 25% equity in their property to take a payment holiday.
“This is something every mortgage provider should now be addressing to ensure people do not end up in a worse financial situation after the holiday. With house prices expected to fall further in the next 12 months, this could just push homeowners over the edge into negative equity making it really difficult to remortgage.”