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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. 

How do mortgage payment holidays work?

Mortgage payment holidays were introduced at the start of the pandemic in March and were extended in early June. Here is how they work:

• You can apply for a payment holiday until 31 October 2020. This lets people who are currently making payments but are concerned about the future have more time to make the decision rather than rush to apply.

• Once a payment holiday’s been granted, it will last for three months. This means you do not need to make payments for that period. However, interest will still accrue while you are on the payment holiday, which will mean you owe more once you do start to repay again.

• You can arrange with your lender to take partial payment holidays. If you can make some payments towards your mortgage, but can’t pay the whole amount, you’ll be able to come to an agreement with your lender to do so. This is better than a full payment holiday as less interest will accrue, meaning future repayments would be lower than if you’d taken a full payment holiday.

• Your mortgage lender will not be able to repossess your home until after 31 October.

Usually, when you do not pay your mortgage for several months, the lender would be able to apply to the courts to repossess your home. Lenders can’t do this until November at the earliest.

What if I’m already on a mortgage payment holiday?

If you’ve taken a payment holiday since March, it’ll last for three months. If you can’t start making full or part payments on your mortgage once your initial deferral comes to an end, you will be able to ask to extend your payment holiday for up to another three months, provided you do this before 31 October.

If your mortgage provider thinks doing this would land you in financial difficulty, for example if the extra interest you’d accrue would create large amounts of extra debt, it will be able to deny you the payment holiday and offer other help, such as freezing interest, or agreeing a repayment plan.

Your lender will contact you towards the end of your initial mortgage deferral to discuss next steps, whether that’s starting to repay in full, in part, or an extension of the mortgage holiday.

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