If you have recently gotten into financial difficulty and are struggling to pay your mortgage as a result, you may be able to apply for a mortgage payment holiday.
It can allow you to reduce or pause your monthly mortgage payments for a fixed period or until your financial situation improves.
In this guide, we’ll explain what a mortgage payment holiday is, how they work, and how to apply as well as some expert advice and guidance that you may find useful if you are struggling to keep up with your mortgage payments.
What is a mortgage payment holiday?
A mortgage payment holiday is an agreement with your mortgage lender to reduce or pause your monthly payments for an agreed period of time.
It can provide some much-needed breathing space in the event of any short-term or unexpected changes to your financial situation but should never be relied on as a long-term solution to permanent money worries.
If you are experiencing sudden financial difficulties and are unable to continue paying your mortgage on time or in full, for example, your mortgage lender may suggest a mortgage payment holiday.
How do mortgage payment holidays work?
If you are temporarily struggling with your monthly mortgage repayments, mortgage payment holidays can provide you with a payment break or reduction until your financial circumstances improve (usually up to six months).
They are a common option for homeowners experiencing an interim drop in income, maternity leave period, or unforeseen household costs.
It does not, however, mean that your monthly repayments have been cleared and you will still be expected to catch up on any missed payments, as well as any interest accrued, when your mortgage payment holiday comes to an end.
Because of this, your monthly repayments will increase slightly after you leave your mortgage payment holiday.
Do I qualify for a break in my mortgage payments?
If you could benefit from a break in your monthly payment schedule, there are a set of conditions you must meet before you can qualify for a mortgage payment holiday.
This depends on your mortgage lender, mortgage contract, previous payment history, and current financial situation.
Some mortgage lenders, for example, require you to have overpaid on your mortgage in the past or made payments for a minimum period before you can qualify whilst others simply don’t offer mortgage payment holidays. You may also be required to show between three to six months’ worth of bank statements to prove you are in financial difficulty.
If you are already in mortgage arrears, it can be difficult – if not impossible – to qualify for a mortgage payment holiday but your lender may still be able to find an alternative solution for you.
How do I apply for a mortgage payment holiday?
To apply for a mortgage payment holiday, there are a few steps you must follow.
-
Talk to your mortgage lender
If you think you may be eligible for a mortgage payment holiday, you must contact your mortgage lender.
They will let you know if you qualify, tell you how to apply, and work with you to establish a mortgage agreement that suits both parties moving forward.
-
Request your mortgage holiday
If you have talked to your mortgage lender and reached a mortgage agreement, you must request your mortgage holiday.
-
Await the lender decision on your payment deferrals
The last step involved in applying for a mortgage payment holiday is to await the decision of your lender.
If your application is approved, your mortgage account be updated with your new monthly payment schedule.
Are there different types of mortgage payment holiday available?
Before you apply for a mortgage payment holiday, you must familiarise yourself with the different types available.
Interest only mortgage payment holiday
An interest only mortgage payment holiday is an agreement where your lender temporarily reduces or pauses your mortgage payments.
It can provide you with greater flexibility but with interest added to your outstanding mortgage balance when your mortgage payment holiday comes to an end, making full or partial payments during this time can help you to offset the financial burden of resuming your mortgage payments in the long run.
Spreading deferred payments over the rest of your mortgage term
It may also be an option to spread deferred payments over the rest of your mortgage term after your mortgage payment holiday comes to an end by increasing your agreed monthly payments going forward.
This means that, once your mortgage payment holiday ends, you will pay a little more every month to cover the payments that you missed.
Extending your mortgage term
To keep your monthly repayments as low as possible, you may also be able to extend your mortgage term.
This can lower your monthly repayments but will extend the period of time during which you are required to continue repaying your mortgage.
By extending your mortgage term, you must also be prepared for your remaining mortgage balance to increase slightly with extra payments accumulating extra interest.
What happens when my mortgage payment holiday ends?
If you have taken a mortgage holiday, check with your lender to ensure you know what your monthly mortgage repayments will look like when your mortgage holiday ends.
Your outstanding mortgage balance will be updated to include your usual payment schedule as well as your missed payments with the remainder of your mortgage term slightly higher to cover the additional interest charged during this period.
This might sound daunting, but your mortgage provider should be able to keep you up to date on any changes to your monthly repayment schedule at every step of the way.
Your mortgage provider, however, should only recommend a mortgage payment holiday as a last resort if your financial situation is in need of immediate help and has been thoroughly assessed beforehand.
If you are still unable to pay your mortgage after a payment break, you must contact your creditor as soon as possible.
Will a payment holiday affect my credit file?
If you have taken a payment holiday for all of part of your mortgage, it may be marked as a missed payment and, therefore, can affect your credit file.
The Financial Conduct Authority, however, has confirmed that a coronavirus mortgage payment holiday will not be shown as a missed payment and, as a result, will not be shown on your credit report.
It is worth noting, however, that a lender is likely to look at more than just your credit file whilst assessing your creditworthiness with several factors influencing their decision to give you credit.
If you are in doubt, you must ask your lender if and how your mortgage payment holiday will be shown on your credit file as this can make it difficult to get credit down the line.
What if my payment holiday ends and I still can’t afford my mortgage payments?
If you are worried about being able to afford your mortgage repayments when your payment holiday ends, it may be worth shopping around for a cheaper mortgage deal or reaching out to your lender as soon as possible.
With your monthly payments increasing after you leave your mortgage holiday, any partial payments you can make during this time will also lower your monthly payments in the long run.
This can prevent you from accumulating mortgage debt or ending up in mortgage arrears down the line with a mortgage payment holiday not to be viewed as a be-all-end-all solution to major financial difficulties or serious money worries.
Where can I get more information on mortgages and missed payments?
If you are experiencing financial difficulties and are worried about being able to continue paying your mortgage, you must reach out for free debt advice and money guidance as soon as possible.
Whether you are in need of immediate help or are just assessing your options, the main credit reference agencies in the UK (Experian, TransUnion, and Equifax) should also include up-to-date information on everything you need to know about mortgages and missed payments.