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When money is tight making your monthly mortgage repayment can be a struggle. If this is a worry for you, you may be able to apply for a mortgage payment holiday. Read on to discover how to apply for a mortgage holiday, the pros and cons and whether it's the best thing for your finances.
A mortgage holiday, also known as a payment holiday, is an agreement between you and your lender that allows you to temporarily stop or reduce your mortgage repayments.
Some mortgage lenders will allow you, in certain circumstances, to take a break of up to six months from your mortgage repayments. While you won’t be making repayments interest will still be building on your debt, so in the long run a mortgage holiday won’t save you money. But, it can be a welcome way to ease your monthly outgoings during hard times.
Whether you can take a mortgage holiday will depend on the small print on your particular mortgage deal and whether your circumstances meet your lender’s criteria for allowing breaks in repayments.
The Covid pandemic led to the number of people taking mortgage holidays soaring. During the first lockdown 1.86 million households took a mortgage payment holiday, according to figures from UK Finance, adding up to one in six mortgages.
But mortgage payment holidays weren’t invented during the pandemic, they have existed for years. Now, in 2023, as the cost of living crisis bites many of us may be looking to take a break from our mortgage repayments once again.
If you take a mortgage holiday it won’t be recorded on your credit file as a missed payment. This means it shouldn’t have a negative effect on your credit report.
However, it has to be an official mortgage holiday that has been arranged with your lender. If you simply stop making your monthly mortgage repayments it will be logged as a missed payment and can have a significant impact on your credit score. This will then affect your ability to borrow in the future.
While a payment holiday shouldn’t negatively impact your credit score, it could still affect your future ability to get a mortgage. This is because lenders can take into account a range of information when making lending decisions.
Some lenders may infer you were struggling financially from the gaps in your payment history even though the holiday isn’t logged on your credit file.
A mortgage holiday is when your mortgage payments are paused for a period a time.
A mortgage payment holiday doesn’t mean your lender will cover the cost of your mortgage or simply wipe away months of mortgage payments. Instead, they will be allowing you to defer the payments to a later date in the future.
This means interest will still build on your mortgage debt. When you do restart payments your monthly amount will be higher.
Whether or not you qualify for a mortgage holiday will depend on the terms and conditions of your mortgage agreement.
You may also need to meet the following criteria:
If you are already behind on your mortgage repayments you will not be approved for a mortgage holiday. However, still contact your lender as they may be able to help you get back on track in other ways. For example, you may be able to temporarily reduce your monthly repayments.
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If you are struggling to pay your mortgage each month then speak to your lender. Discuss your financial difficulties with them and they may be able to offer you a mortgage holiday.
When you call them make sure you have the following info to hand:
Before your mortgage holiday is due to end you should get a letter from your mortgage lender to let you know when your monthly repayments will restart and how much your new repayments will be.
At this point you should resume your monthly repayments if possible. If your financial situation hasn’t improved speak to your lender to find out if they can give you any other assistance.
Depending on your financial situation and your lender, you could:
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Yes. You’ll still owe the bank the same capital amount as you do now, and interest will continue to accrue on this. This means it will take you longer and cost you a little more to clear your mortgage.
Therefore, it’s best to continue with your monthly repayments if you can.
Yes. Speak to your mortgage lender who should be able to accommodate partial payments towards your mortgage.
Probably not. Most lenders only offer mortgage holidays on owner-occupied properties. However, if you are struggling to make the repayments on your buy-to-let mortgage you should still contact your lender to discuss your options.
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
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