More than 1.6 million mortgage borrowers have taken out mortgage payment holidays since opening in March.
According to data produced last week by UK Finance – the collective voice for the banking and finance industry – banks and building societies have processed almost 700,000 applications in the month of April, and that one-in-seven UK mortgages are now subject to a payment holiday.
Whether you should try and get a mortgage payment holiday depends on your individual circumstances. For those who will genuinely be unable to cover their outgoings, or will have to choose between a mortgage payment and other essential items, it could be a good option.
Having received a number of enquiries relating to this subject, we have provided answers to some of the frequently asked questions below:
- What is a payment holiday?
A mortgage payment holiday is an agreement made with your lender allowing you temporarily to postpone your monthly mortgage repayments, reducing your monthly outgoings and giving you some valuable breathing space, where required.
- How do I set up a mortgage payment holiday?
To set up a mortgage payment holiday you should contact your lender directly, as we will no longer have authority to speak with the lender on your behalf. The lender should review the request swiftly and they should not charge a fee for doing so. Several lenders have online forms which simplifies and speeds up the process. Other lenders may require that you email or call them. We’ve provided contact details for the most recognised lenders here.
- Will obtaining a payment holiday impact my credit score?
The FCA ha stated that lenders should ensure the temporary measures do not impact credit scores and reports. Additionally, the UK’s three main Credit Reference Agencies have pledged to protect credit scores during the COVID-19 pandemic. Experian, Equifax and TransUnion have agreed to an ‘emergency payment freeze’, with new guidance which ensures an individual’s credit score is not affected over the duration of the agreed payment holiday. It is however important to note that, although you credit score may not be impacted, you may find lenders are less likely to lend to you whilst the payment holidays are in place.
- Can I apply for a payment holiday is my tenant is already in arrears?
If your tenant is in arrears but your mortgage payments are up to date, then you can apply for a mortgage payment holiday. The government is keen for landlords to work with tenants to arrange a repayment plan for missed rental payments. However, the government has announced that although notice can be served on tenants in arrears, the the notice period must now be “no less than 3 months”. All Notices served on Tenants after 26th March 2020 until 30th September 2020 must not expire within a 3 month period.
- Are payment holidays free?
Payment holidays aren’t free. Despite the positive-sounding name, these ‘holidays’ will cost you. That’s because interest still accrues during the break so you’ll have to pay more back over the term and your monthly payments will increase after the holiday has ended.
- What impact would a mortgage payment holiday have on my mortgage payments?
At the end of the payment holiday it is likely your lender will make contact with you, to discuss how the holiday will be repaid. The options available to you will vary from lender to lender although a likely scenario is that the lender would add the deferred interest to the mortgage balance and charge interest on it on the total amount for the remainder of the term. You can use this mortgage holiday payment calculator to see the impact this could have on your mortgage.
Please DO keep a record of the conversation with your lender and save email correspondence received from them in case you need proof that an agreement was in place at a later date.
Please DO NOT cancel your Direct Debit Mandate before you have spoken with your lender and obtained their agreement to a payment holiday. Cancelling your direct debit prior to agreement by the lender could be registered as a missed payment on your credit file and would significantly affect your ability to secure future finance.
