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Payment holiday for debt repayments

Mortgage payment holidays

Mortgage payment holidays can be a good way to ease your financial situation if you're struggling. However, there are reasons why you shouldn't take one unless it's absolutely necessary.

What is a mortgage payment holiday?

A mortgage payment break is when part or all of your mortgage payments are put on hold for a set period of time. However, you should bear in mind that you’ll still have to pay off the entire mortgage, either by increasing your monthly payments, or extending the term of your mortgage.

Mortgage payment holidays offer flexibility in reducing or stopping your mortgage payments. However, you may have to pay more over the long term in interest. For this reason, if you can afford to make full or partial payments to your mortgage, you should do so.

Your mortgage lender will not charge you an additional fee to set up a payment holiday.

 

How have mortgage payment holidays changed due to coronavirus?

It has been agreed with the government that banks, building societies and other mortgage lenders should offer all existing mortgage customers the option of a six-month mortgage holiday.

If your finances have been affected by coronavirus and you want to request a mortgage holiday from your lender, you can apply for a mortgage holiday of six months. If you’ve already had a payment holiday, you can now request it to be topped up to six months without it affecting your credit file. You have until 31 July 2021 to apply for a mortgage payment break if your finances have been impacted by coronavirus.

These new rules are a direct response to the financial difficulties caused by coronavirus. You don’t need to have had coronavirus yourself to qualify for a payment holiday.



Can I apply for a mortgage payment holiday if I haven't been affected by coronavirus?

Yes, you can still apply for a payment holiday if your situation has not been adversely affected by coronavirus. However, if this is the case, speak to your mortgage lender to see what they’re willing to do.

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How do I apply for a mortgage payment holiday?

If you want to apply for a mortgage payment break, follow these three simple steps:

  1. Speak to your lender. A payment holiday is not automatic, which means that you should not stop direct debits to your mortgage without first speaking to your lender. If you do this, it will be counted as a missed payment by both your lender and credit reference agencies. Missed payments are recorded on your credit file and could affect your ability to re-mortgage in future
  2. Request a mortgage holiday.
    If you're experiencing financial difficulties as a result of coronavirus and have spoken to your lender, you may be able to request a payment holiday
  3. Your lender makes a decision based on your situation. Most lenders will have a fast-track approval process in place at the current time, and you should have a decision quickly. If your financial situation has been affected by coronavirus, you won’t need to provide evidence or have an affordability test. You’ll simply be expected to self-certify that you have less income available to pay your mortgage.

Mortgage payment holidays can be a good way to ease your financial situation. But if you're worried about  your finances, and think you may need more support, you should seek free and impartial debt advice.

What options will my lender give me for a mortgage payment break?

Once you’ve contacted your lender, they’ll talk to you about the amounts that will be covered by your payment holiday. They’ll also tell you what your monthly payments will be once your holiday’s over. They may suggest one or all of these possible options:

 

  • Spreading your deferred payments over the remaining term of your mortgage. This means you’ll have to pay an increased amount each month once the payment holiday ends.
  • Increasing the length of your mortgage term. This option means that your monthly repayments will be only slightly more than what they were before, but with more payments added to the end of your mortgage. It does mean that you’ll be paying back more over the full term of your mortgage, because of the extra interest you’ll be paying on the extra payments.
  • Making interest-only or capital-only payments. This means, effectively, making partial mortgage payments. However, bear in mind that you’ll still have to pay what you’ve missed either in increased monthly payments or in an extension of your mortgage term.

If you have one of the above options in mind, you should ask your lender if this is possible, even if they don’t initially offer it to you.

Lenders will be contacting customers on mortgage payment holidays to find out what they can afford to repay. Those who remain in temporary financial difficulty will be offered further support.

 What will happen at the end of my mortgage payment holiday?

Once your payment holiday comes to an end, your payments will resume with the ‘missed’ amount still outstanding.

For mortgages, this means your monthly payment for the remainder of the term will be higher to cover the missed payments and additional interest charged during the payment break.

How much higher your payments will be, depends on how long is left on your mortgage term. Generally, the longer the remaining term, the lower the increase in payments will be.

I’m currently behind on my mortgage payments. Can I still apply for a payment holiday?

You won’t be automatically excluded from a mortgage payment holiday if you’re currently behind on your mortgage payments. Once you contact your lender, they’ll discuss possible options available to you.

I'm worried about repossession. What should I do?

If this is the case, you should speak to your lender. However, you shouldn’t be currently at risk, because mortgage repossession proceedings have been suspended during the current coronavirus crisis, until at least 31 October 2020.

Does taking a mortgage payment holiday affect my credit rating?

A payment holiday (whether it’s all or part of your mortgage) will not be marked as a missed payment on your credit file. However, it’s worth being aware that credit files are not the only way that lenders assess your creditworthiness.

If you’re worried about any impact to your credit score, you should speak to your lender.


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What if I have a buy-to-let mortgage?

Officially, buy-to-let mortgages are not covered by the regulations around payment holidays issued by the FCA. However it should be possible for you to access payment holidays if you are a buy-to-let landlord, and your tenants have been financially affected by coronavirus.

If you’re a landlord, you’ll be expected to pass on this holiday to your tenants.

If I'm on a debt management plan (DMP), can I still request a mortgage holiday from my lender?

Being on a DMP won't affect your eligibility for a mortgage holiday, unless you have mortgage arrears (whether or not they're being paid through the plan). If you do have mortgage arrears, your lender may still be able to help you, but you should contact your lender as soon as possible to explain the situation.

What's the difference between deferment and forbearance?

Mortgage payment holidays under normal circumstances are a form of deferment. This simply means that a form of debt that you owe can be 'deferred' or delayed until you can afford to pay it.

Forbearance is when creditors (including mortgage providers) take account of the fact that you may be in difficult financial circumstances, and give you relief from payment, interest and charges. Due to coronavirus, creditors have been showing forbearance across a range of different debts, including mortgages.

What if I can't pay my mortgage this month?

If you can't pay your mortgage this month, the first thing you should do is speak to your mortgage lender, to find out if they can help you. A mortgage holiday is one of the options they might offer you, but there are others (including switching to interest or repayment only) which may be more suited to your needs.

Mortgage holidays have many advantages, but they aren't right for everyone, and you shouldn't take one unless you feel it's really necessary.

Whatever your mortgage situation, it's important to speak to your lender.