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. If renters are struggling, a payment holiday is also available to landlords with a buy-to-let mortgage.
In June, the Financial Conduct Authority (FCA) confirmed that anyone who is still struggling to pay their mortgage due to Coronavirus will be able to extend their payment holiday for a further three months. The extension for new applications has also been extended, so if you have not yet agreed a payment holiday with your mortgage lender, you now have until the 31 October to apply.
How the payment holiday works
- You can arrange the holiday by speaking to your lender directly. We encourage you to do this as soon as you’re able if you think you might struggle.
- 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.
- You don’t need to provide any evidence to qualify for the three-month break. Just explain you are worried about missing payments.
- 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 three-month payment holidays. The rule also applies to those with car finance, store cards and catalogue debts.
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.
Contact your lender or credit provider directly as soon as you think you might be unable to make repayments. You can also see how lenders are helping credit customers in our handy guide.
Payment holidays for insurance
If you’re struggling to meet monthly payments you can also apply to pause your insurance payments for one to three months. Including car, home, boiler, life, private medical insurance and more.
This could also involve extra flexibility so you could benefit from the following:
- Waiving of cancellation fees
- The chance to reassess your policies to make sure they’re still suitable
- The removal of any ‘unecessary’ extras – such as ‘key cover’ while you’re not using your car as often, if at all
Will a payment holiday affect my credit rating?
A payment holiday generally should not create a blemish on your credit report as long as it’s agreed with your lender in advance. 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 affecting your score, and it's been implemented by your lender correctly.
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. Where you agree a payment freeze with them, you should ask the company how they will show this on your credit report.
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.
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.