Mortgage holidays

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 arrange a mortgage payment holiday with your lender. . 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.

What is a mortgage holiday?

• 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 temporary break from or reduce your mortgage repayments. How long a payment holiday lasts will depend on your lender, your mortgage and your circumstances.
• While you won’t be making your usual repayments, interest will usually continue to build up on your mortgage. This means a mortgage holiday is likely to increase the overall amount you repay. But it may provide some breathing space by reducing your monthly outgoings for a short period.

Are mortgage holidays popular?

• 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 around one in six mortgages.
• These were special payment deferrals introduced during the pandemic and were subject to different rules from mortgage payment holidays available today.

Does a payment holiday affect credit rating?

A mortgage payment holiday may affect your credit rating and your ability to borrow in future. Even if your lender agrees to the payment holiday, it may be recorded on your credit report, so ask your lender how the arrangement will be reported before agreeing to it.

Simply contacting your lender to discuss your options will not affect your credit score.

Bear in mind that if you simply stop making your monthly mortgage repayments, rather than agreeing a mortgage holiday with your lender, they will be logged as missed payments and can have a significant impact on your credit record and your ability to borrow in the future.

There are different rules for certain support available under the Mortgage Charter. Read on for more on this.

How does a mortgage holiday work?

• A mortgage holiday is when your mortgage payments are paused or reduced for a period of time, with your lender’s agreement.
• 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, you are temporarily deferring some or all of your payments.

• This means interest will usually continue to build up on your outstanding mortgage balance. As a result, your mortgage balance and future repayments may be higher than they otherwise would have been. Your lender should explain how you will repay the deferred amount.

Can I get a mortgage holiday under the Mortgage Charter?

• The Mortgage Charter does not give borrowers an automatic right to a mortgage payment holiday. However, lenders that have signed the Charter have agreed to offer support to borrowers who are struggling with their mortgage payments.
• If you’re up to date with your payments, you may be able to switch to interest-only payments for six months or extend your mortgage term to reduce your monthly payments. These options are available on a one-off basis without a new affordability check or affecting your credit score. However, your overall mortgage costs may increase.
• Your lender may also offer other tailored support, which could include a temporary payment deferral. The right option will depend on your circumstances. Read more in our guide I can’t pay my mortgage: What are my options?

Do I qualify for a mortgage holiday?

Whether or not you qualify for a mortgage holiday will depend on your lender, the terms and conditions of your mortgage and your circumstances.

Your lender may consider factors including:

• your payment history
• how long you’ve had your mortgage
• your financial circumstances and why you need a payment holiday
• the amount you owe compared with the value of your property
• whether you’ve previously overpaid your mortgage
• whether you’ve taken a payment holiday before

If you are already behind on your mortgage repayments, you are unlikely to qualify for a standard mortgage payment holiday. But you should still contact your lender as soon as possible.

Your lender must consider what support may be appropriate for your circumstances and may be able to offer other options to help you manage your repayments.

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How do I apply for a mortgage holiday?

Contact your mortgage lender before stopping or reducing any payments to discuss the support available and whether a mortgage payment holiday is appropriate.

Your lender may ask for information about your finances, such as:

• your mortgage details
• your monthly income
• your monthly household spending
• details of your debts including how much you owe and to whom
• why you need temporary support and when you expect to be able to resume your normal payments

What happens when my mortgage holiday ends?

Before your mortgage holiday is due to end, your lender should tell you when your normal mortgage payments will restart, how much you’ll need to pay and how the payments you deferred will be dealt with.

At this point you should resume your agreed monthly repayments if possible. If your financial situation hasn’t improved, speak to your lender before the payment holiday ends to find out what other support may be available.

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Will I pay more in interest if I take a mortgage holiday?

Yes. Interest will usually continue to build up while you’re taking a mortgage payment holiday, so you’ll usually pay more over the life of your mortgage. Your lender should explain how you’ll repay the amount you’ve deferred and what this means for your future monthly payments and the overall cost of your mortgage.

Can I make partial payments while on a mortgage holiday?

Possibly. Your lender may agree to temporarily reduce your mortgage payments rather than stop them altogether. Speak to your lender about what options are available and how making reduced payments would affect your mortgage.

What are the alternatives to a mortgage holiday?

If you’re worried about making your mortgage payments, contact your lender as soon as possible. Depending on your circumstances, options may include:

1. Temporarily switching to interest-only payments. If you’re up to date with your payments and your lender has signed the Mortgage Charter, you may be able to switch to interest-only payments for six months without a new affordability check or affecting your credit score. Your payments will usually be higher afterwards and you’ll pay more overall.
2. Extending your mortgage term. This can reduce your monthly repayments, although you’ll usually pay more interest overall. Under the Mortgage Charter, eligible borrowers can extend their term and have the option to revert to their original term within six months.
3. Making reduced payments. Your lender may agree to temporarily reduce your mortgage payments depending on your circumstances.
4. Remortgaging. If you’re approaching the end of your current mortgage deal, you may want to look at whether remortgaging. could reduce your payments.

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