Updated: Mar 8
So, with the worry of Coronavirus becoming more of a global pandemic, and the figure supplied that 1 in 5 workers will be absent with the condition what options are going to be available if you don’t have long term sick pay through your employer?
Option 1 – Mortgage break/holiday
What is a mortgage break/holiday? A mortgage break/payment holiday is an agreement you might be able to make with your lender allowing you to temporarily stop or reduce your monthly mortgage payments.
For example, depending on your circumstances and previous payment history, you might be able to take a break for usually up to six months. However not all mortgages offer the option of a mortgage payment holiday – it depends on the product’s terms and conditions.
Am I eligible? Whether you are eligible to take a mortgage break/payment holiday, will depend on the points below;
The mortgage contract,
and Your financial circumstances
Often, in order to qualify for a mortgage break/holiday, you’ll need to have previously overpaid on your mortgage. That means paying more than your agreed monthly payments until you have built up sufficient credit to take a break from your mortgage payments.
However, your lender may allow you to reduce or suspend mortgage payments if you’re temporarily struggling to meet the monthly cost due to a long-term illness, change of circumstance, such as redundancy, or maternity leave.
If you’re in mortgage arrears you won’t be eligible for a mortgage payment holiday. But don’t let that stop you contacting your lender, they will be keen to help you come to an arrangement.
Pros? The biggest positive about a mortgage break/payment holiday is that it relieves some pressure for a while and you have one less thing to worry about when considering your outgoings.
If you are only facing a temporary drop in income due to long term illness, or perhaps because you or your partner are going on maternity leave, then a mortgage break/holiday may be a sensible move. However, there are also cons to go along with the pros.
Cons? There are several important things to bear in mind about mortgage breaks/holidays;
While you are not making mortgage payments, you’re still racking up interest on your remaining mortgage balance.
When the payment holiday comes to an end, your outstanding mortgage balance and mortgage payments will be higher than they were before the holiday.
Even if your lender agrees to this temporary solution, your credit file will be affected. This in turn could affect your ability to get credit in the future.
For me it is the last point that I will always ask my clients to consider finding another option before committing to a mortgage break/holiday, as this option will affect your credit rating and in turn this will cause issues with later credit applications, such as mortgages, credit cards, loans and many other financial applications.
Unfortunately, this isn’t an option for the rental sector, but you could approach your letting agent or landlord/landlady to see if they were willing to give you some time off from the rental payment or even a reduced payment until you are back on your feet.
With the main point of this blog being should I have a mortgage break/holiday or look at other options, what are the other options?
Well, we have 2 options to look at, they are Income protection and Accident and sick pay, but before I tell you a bit more about these options the Government have announced a little positive note about statutory sick pay;
The little bit of good news is they have announced that statutory sick pay will be available from day one for people affected by Coronavirus, rather then having to wait the normal 4 days. The downside though is statutory sick pay only pays £94.25 per week, and with the average UK mortgage payment being £678.16 per month this would leave the average household with a shortfall of £269.74. For the rental sector (England) this was an average of £700 per month, so this would leave you with a £291.58. Also, a big factor to take in to account is that the scenario above is just looking at the average mortgage payment and not taking in to account lifestyle costs.
So here are a couple of options that would take care of the above shortfall, but also put more than the minimum statutory sick pay in place for you (subject to current income).
Income protection - So, what in income protection and how does it work?
Income protection insurance is a long-term insurance policy designed to help you if you can’t work because you’re ill or injured. It ensures you continue to receive a regular income until you retire or are able to return to work and below are 6 points that I will cover off;
Does it replace all of my income? No, if you can’t work because you become ill or disabled, the insurance company will replace a percentage of your income or an amount you have nominated to insure as long as it is not above the maximum amount they are willing to insure.
Does it pay out until I return to work? In short, ‘yes’ but this is subject on how you set the cover up. As with income protection you have got multiple options on how long to cover your income for and they are, until retirement, match your mortgage term or for a period that you feel you need cover for (most insurance companies want to see a minimum of a 5-year term taken out). On top of this as well you can select to take payment for a maximum term such as 12 or 24 months and the payments then stop if you have not returned to work.
Is there a waiting period before the payments start? You generally set payments to start after your sick pay ends, or after any other insurance stops covering you. However, if you have no sick pay or other insurance policies in place then some companies will allow you to have the policy start from day 1 of being of work. One thing to bear in mind is the longer you wait, the lower the monthly premiums become.
Does it cover most illnesses that leave you unable to work? Yes, income protection covers all sickness and illness either in the short or long term (depending on the type of policy and its definition of incapacity, along with any pre-existing conditions that they may not cover.
Can I claim as many times as I need to? Yes, while the policy lasts.
How much does it cost? This will depend on many factors, amount of cover, how long for, deferred period (how long you wait before it pays out), current health (as this type of policy is medically underwritten).
Do I have any other options?
Accident and Sickness pay
This is designed to pay you an agreed monthly amount during a short period (usually 12 months) when you can’t work because of an accident or sickness. When you make a claim, you have to wait a set number of days before you start to receive a monthly payment. The payments continue until you go back to work, or – if you don’t return to work – for a maximum period (typically one or two years).
There are a number of situations that accident and sickness doesn’t cover, these include;
some illnesses – check the list in your policy pre-existing conditions (illnesses you know about already)
an accident or sickness resulting from drug or alcohol abuse
30 day waiting period before claiming (you’ll need to be able to manage yourself during this period, or choose a policy that starts paying from day one of you being off work).
This makes this type of policy great for people that have been declined by all other insurance companies for income protection, or find that the monthly premiums were too expensive offered due to health conditions.
This type of policy will normally cover a maximum payment of 125% of your monthly mortgage payment and only look to normally cover you for 12 months. The premiums are set at the same for every person and they are worked out per £100 of cover. With many insurance companies offering this type of policy they all offer different premiums, so some companies are cheaper than others.
Further Government help
Please also find 2 links to the Government website that gives you further information on mortgage payment help and housing benefit for the rental sector;
Please note that these will be subject to full financial screening and also application process.
For further information on insurance products please visit my website page;
Links to statistics provided in blog;