Many people have been affected financially by the COVID-19 pandemic and the subsequent lockdown and closure of businesses. The government has told mortgage providers to offer mortgage payment holidays to those who may be struggling to keep up with their repayments on a reduced income. This is to try and prevent people from losing their homes as a result of the pandemic.
Here are some things you need to know when trying to decide whether to take a mortgage holiday.
What is a mortgage holiday?
Homeowners can currently ask their lender for a three-month mortgage payment holiday. During those three months, you do not have to make your usual monthly payment. The amount you owe on your mortgage will remain the same and will still be subject to interest. After the initial three months, you may be able to apply for a further three months if you are still on a reduced income.
If you were already behind with your payments before the COVID-19 outbreak, you might want to talk to your lender about other available options instead.
Will it cost me extra if I take a mortgage holiday?
Although there are no additional fees or charges for taking a mortgage payment holiday, it is likely you will incur extra interest because you aren’t reducing the balance.
That means that when your payment holiday ends, your mortgage payments might be slightly higher than before, or it may take slightly longer to pay off your mortgage.
You should only take a mortgage payment holiday if you are really struggling to make the repayments. If you can afford to carry on paying, then you should.
Will taking a mortgage holiday affect my credit score?
The three main credit reference agencies have confirmed that your credit score will be protected if you take a mortgage repayment holiday. They will not record the payment holiday as missed or late payments on your report. If you were already in arrears, this will continue to show, but will not get worse.
If you take a payment holiday, make sure that you have agreed it with your lender – don’t just cancel the direct debit. You should also check your credit report each month to make sure that nothing is wrongly recorded. If your lender does submit the payment break as a default, then contact them and ask them to fix the mistake.
Although your credit score will not be impacted, it may be possible for lenders to see that you have taken a mortgage payment holiday if you apply for credit in the future. Every lender has different criteria when assessing your loan or credit application, so it is hard to tell whether this will impact their decision to approve you for credit.
How do I apply for a mortgage holiday?
Contact your mortgage provider and request a payment holiday. They will make the necessary arrangements and apply it to your account.
Do not cancel your direct debit. If you do this without agreeing a payment holiday, it will be classed as a missed payment. This could be recorded on your credit report, which could impact your chances of borrowing in the future.