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Mortgage payment holidays on offer if you are struggling to pay – how they work

If keeping up with your bills and food on the table has become a challenge and you’re finding it hard to pay your mortgage, speak to your lender. In March, banks agreed with the Chancellor that they would offer ‘forbearance’ (tolerance and help) on mortgages and other loans secured on your mortgage.

This means lenders should offer those struggling a ‘payment holiday’, allowing customers a temporary break from having to make mortgage payments during this time.

If you’re going to apply for a mortgage holiday, it’s best to do it online where possible, as lenders’ phone lines are very busy. In fact, latest figures from lenders’ trade body UK Finance show that 1.9 million customers have taken a payment holiday since the coronavirus crisis began. That is one in six of all mortgages in the UK.

Resources and Useful Links

These links below open to a new website page for each respective lender and offer some further, useful resources. 

Help if you are struggling with your mortgage repayments

On Saturday 31 October 2020, hours before the main mortgage payment holiday help schemes were set to run out, the UK Government announced that mortgage payment holidays would be extended.

• Borrowers who have not yet had a payment holiday will be able to request one up until 31 January 2021. They would be able to apply for a three-month payment holiday, with the option to extend it for another three months afterwards (even though they’d be past the January deadline).
• Borrowers who have already had or are on a three-month payment holiday will be able to apply for another three months. This would be up to a maximum of six months of payment holidays.
• Borrowers who have already had six months of payment holidays and still need help will be offered ‘tailored support’. Your lender should contact you to discuss this. Read more about the tailored help you could be offered.
• Your first six months of payment holidays WON’T be reported as missed payments on your credit file, but lenders can still find out about them. Usually if you miss a payment, the lender reports that to credit reference agencies. If you then apply for credit, other lenders will be able to see the missed payment. Yet, when you agree a payment holiday with your lender, it’s reported as if the payment has been made (assuming you weren’t in arrears before the payment holiday.
But, it’s worth knowing that even if it’s not on your credit file, lenders can still find out about the payment holiday in other ways – for example, they can see your mortgage balance isn’t going down – and can use that information to help their decision when you next apply for credit.
• Your lender will not be able to repossess your home for non-payment until 31 January 2021. The only exception is if you agree to the repossession.

What if you’ve already had a six month payment holiday?

If you have already had a six month payment holiday, then Tailored Support may be available, this could be:
A (further) payment deferral.
This is likely to be a short-term measure only, and may be offered if your circumstances are still changing, and you’re not able to commit to a longer-term measure such as changing your mortgage type or length.
A (further) period of reduced payments. If you can pay something towards your mortgage, but can’t make the full contractual repayment, your lender may agree to you making reduced payments. Again, this measure is likely to be for the short-term only.
An extension to your mortgage term. This is essentially like a remortgage, and means you’ll pay less each month (but as you’re borrowing over a longer period, you’ll pay more overall).
A change to your mortgage type. For example, this could be switching you to an interest-only mortgage or changing to a product with a different interest rate.
             Tailored support WILL be reflected on your credit report

How much could a mortgage holiday cost you?

If you take a mortgage holiday you WILL still be charged interest for the time you’re not making payments. But you won’t have to pay it back immediately – it’ll be added on to the total cost of your mortgage and factored into repayments when you start making them again.
But how much you’ll have to pay after the mortgage holiday will vary depending on how your bank wants you to repay those missed payments. It varies between banks – though generally there are three options:

• Make up for the ‘lost’ payments by increasing your future monthly mortgage payments.

• Lengthen your mortgage term, e.g., if you’ve 15 years left now, you’d have 15 years and three/six months left after the holiday and your payments would stay the same.

• Repay the accrued interest as a lump sum, then resume repayments at the same level as before the holiday.

Your lender will typically decide what options are available to you. It’ll contact you towards the end of your first three-month deferral to find out if you can resume repayments, and – if possible – give you the options on how you want your payments or mortgage term to change.

However, if your lender can’t get in touch with you, it’s free to assume that you can restart standard repayments and to decide how it will charge you for the extra interest that’s accrued during your payment holiday(s). For many lenders, spreading the cost of the missed payments and extra interest over your future monthly payments is the default. So, if your lender contacts you towards the end of your mortgage payment holiday, make sure you talk to it and tell it whether you can resume payments.

Mortgage payment holidays will not be marked as missed payments on your credit report – but they could still affect your creditworthiness

The three major credit reference agencies – Experian, Equifax, and TransUnion – have confirmed that customers’ credit scores WILL be protected when they have an agreed payment holiday in place. This special measure is called an ’emergency payment freeze’ and means a payment holiday will not be reported as a missed payment, protecting your credit history.

So if you were up to date with your payments before the payment holiday, you’ll continue to be up to date throughout. If you were already in arrears, your arrears will be kept at the same level, so the payment holiday months will not be counted as more missed payments.

However, this protection will end on 31 October (or after your second three-month payment holiday if that’s sooner) and if you can’t resume full repayments once the protection ends, any new payment holidays or partial payments agreed with your lender WILL be reported on your credit report.

Could my payment holiday still affect my creditworthiness even if it is not on my credit report?

Yes, it could. While mortgage payment holidays will not be marked as missed payments on your credit report, they could still have an impact on your wider creditworthiness, as other lenders can still find out about them.

This could be through looking at the balances on your mortgage across time on your credit report, though it could also be by looking at bank statements or ‘Open Banking’ data.

**Sourced from Moneysaving Expert

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