Mortgage payment holidays
Chancellor Rishi Sunak announced in March that mortgage lenders should offer a three-month payment holiday to help anyone struggling to meet their normal outgoings during the crisis.
In June, the Financial Conduct Authority (FCA) confirmed that anyone who is still struggling to pay their mortgage due to Coronavirus would be able to extend their payment holiday for a further three months.
The deadline for applying for one of these payment holidays has now been extended to 31 March 2021. This payment holiday could last up to six months, depending on whether you’ve had one before as you are limited to a total of six months payment holiday altogether. If you’ve already started a payment holiday, you will be able to extend it, up to a maximum of six months in total.
How the payment holiday works
- The quickest way to apply is to fill in an online form. Find out which lenders offer an online application here. If you wish to speak to someone on the phone, be prepared for a long wait as phone lines are extremely busy at the moment.
- During the payment holiday, the interest that you would have paid does not get waived. Taking a payment holiday might therefore mean that your monthly repayments in the future will be slightly higher than before if you want to pay off the mortgage in the same time period.
- Alternatively, you can choose to pay back the interest built up after the three months, rather than adding it to the loan. Ask your lender about how it will work and get them to provide you with the new terms in writing.
Should I take a payment holiday on my mortgage?
This could be a suitable option if you can’t meet repayments because of the crisis and would benefit from the breathing space to stabilise your finances. However, if you’ll still be unable to meet your payments after the three-month period, it may not be your best option. If your income has dropped, your lender may offer you other alternatives.
Payment holidays for credit cards, store cards and loans
The Financial Conduct Authority (FCA) has ruled that banks and building societies must offer those with outstanding loans and credit card debts payment holidays lasting up to six months. The rule also applies to those with car finance, store cards and catalogue debts.
Similar to mortgages, the deadline for payment holidays on loans and credit card debts is expected to be extended to 31 March 2021. These payment holidays could also last up to six months in total.
For example, if you’ve already had or are on a 3-month payment holiday, you will be able to apply for another 3-month payment holiday. You can find more details about how to contact lenders here.
If you have taken out short-term credit such as payday loans, you can defer payments for one month if you’ve not yet had a payment holiday.
If you decide to take a payment holiday, you will still be charged interest, which must be repaid at a later date. Many lenders are being flexible and offering support to borrowers suffering financial hardship. They might agree reduced payments or credit limit increases to help customers during these difficult and uncertain times.
Will a payment holiday affect my credit rating?
A payment holiday won’t appear on your credit report and should not affect your credit score. Usually, missed payments would be reported by the lender to the credit reference agency.
The first six months of payment holidays, where it’s arranged as a result of the pandemic, should not appear on your credit report as long as it’s agreed with your lender in advance. Usually, missed payments would be reported by the lender to the credit reference agency.
If you simply cancel your direct debit or fail to make a repayment on the usual date without prior agreement it will register as a missed payment on your credit report, which may result in you being charged a fee.
Once a payment holiday is in place, it's a good idea to check your credit report to make sure it's not resulting in new missed payments being reported by your lender.
Household utility firms (for example water and energy suppliers) are taking differing approaches to how they support consumers at this time, which may result in changes to how they update your credit report. If you agree to defer payment to them, you should ask the company how they will show this on your credit report.
As well as the payment status of your accounts, credit scores also take into account many other factors, such as your total level of unsecured debt (for example, the balance of any credit cards, personal loans and overdrafts) and how heavily you’re using your credit cards (your credit utilisation).
Could my recent payment holiday affect my mortgage application?
Lenders don’t just use credit reports and credit scores to assess your creditworthiness when you apply for a mortgage. They also use information from your application form, and sometimes your bank account, to consider whether you can afford the new payments. If you’ve taken a recent payment holiday, some lenders may look at your application more carefully.
If you’ve recently taken an agreed payment holiday and are about to apply for a mortgage, it’s important to speak to lenders directly before you apply. Ask them whether your agreed payment holiday might affect your application.
What if I’ve already had a payment holiday lasting six months and can’t resume my usual payments?
If you’ve already had the maximum allocation of payment holidays available to you and can’t meet your usual payments, lenders will typically offer ‘tailored support’ that best suits your circumstances. If this tailored support takes the form of further payment deferrals or reductions, this may appear on your credit report as a temporary payment arrangement. An arrangement flag will stay on your report for three years after the arrangement ends. Also, you’ll probably see your arrears build up (‘arrears’ means the amount of money you owe and should have paid earlier) during any payment reduction or break. These changes to your report may affect your chances of getting accepted for credit.
Lenders should explain how any support they offer may impact your credit report. You should try to meet your regular payments if you can and only ask for support if you really need it.
During this challenging time we want to help give you as much guidance as possible. You can find more information on our Coronavirus help page.