Payment holidays – consider your options
Back in March, the Chancellor’s announcement, offering three-month mortgage payment holidays for homeowners experiencing financial difficulties due to the pandemic, came as welcome news to many. Mortgage lenders agreed with the Treasury that any customers in ‘difficulty’ would be eligible. Mortgage payment holidays have since been extended for a further three months to 31 October (deadline for applying).
Recent data1 has revealed over 1.8 million mortgage payment holidays have been offered to customers impacted by COVID-19, with around one in six mortgages in the UK now subject to a payment holiday.
How does it work?
Homeowners concerned about being unable to pay their mortgage should contact their lender. If they progress to applying for a mortgage payment holiday, they must self-certify that their income has been affected – no documentation is required. Most lenders offer an online application, no fees should apply. Due to the pandemic, credit agencies have agreed to ensure current credit scores are protected for the duration of an agreed payment holiday.
Think it through
Payment holidays provide short-term relief, alleviating some financial pressure. Faced with a temporary drop in income, it can be an option, depending on individual circumstances. Taking a payment holiday will not reduce the capital you still owe, nor will interest stop accruing. That means it will cost more to clear your debt once payments resume, so your monthly payments will be higher as a result of taking the holiday.
Need to know
You must not stop making mortgage payments without speaking to your lender. If you do this, you will go into arrears, creating a black mark on your credit file which could prevent you borrowing in the future. If you only have a few years left on your loan, in terms of repaying the holiday, your monthly costs will shoot up after the payment holiday.
Don’t rush in
If you are worried about making your mortgage payments, it is crucial that you speak to your lender. A payment holiday may not be suitable for everyone. Some brokers have reported that people have panicked and arranged a payment holiday too early.
1UK Finance, May 2020
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.