What is a mortgage holiday?

 Couple seeking mortgage payment holiday advice from their mortgage lender

If agreed by your mortgage lender, you might be able to take a mortgage payment holiday, also known as a mortgage holiday, meaning you can temporarily pay less on your mortgage per month. You might even be able to pause repayment. However, these agreements are based on certain circumstances, such as an approved period of time before going back to making full payments.

Reasons to take mortgage payment holidays can include financial difficulties that affect regular repayments. However, it might not be possible to have a mortgage holiday unless it is part of your mortgage agreement. This is something you would need to discuss with your mortgage provider.

The government mortgage holiday scheme

COVID 19 had a direct impact on individuals' finances in 2020 and as a result many saw their income reduced or found themselves placed on furlough. As a result the Government introduced the emergency mortgage holiday in 2020. which ended in March 2021.

To help homeowners who might now be impacted financially by COVID 19 or for those who previously had a mortgage holiday, banks agreed with the Government to offer a service called ‘tailored support’. However, tailored support will only be offered if it is believed to be absolutely necessary, and meet certain requirements.

What is ‘tailored support’ for a mortgage holiday?

To help those that still might require help returning back to regular mortgage payments after the payment holidays ended, or those who now need financial help the Government introduced with the bank tailored support. Tailored support could include:

  • Reduced repayments – This is usually a short term measure, but a lender might agree to accept smaller payments towards the mortgage.
  • Continued deferred payment – Sometimes suitable for homeowners who find their circumstances might be continuing to change (for example, irregular income). Deferred payment can be a short-term measure to continue to delay repayments.
  • Mortgage term extension – This is a contract to agree to pay less each month, so borrowing over a longer term. This works like remortgaging, but does mean you could be paying more interest because you are repaying over a longer period.
  • Changing mortgage type – Choosing a mortgage with a different interest rate, or an interest-only mortgage, might offer some flexibility to adjust.

What does a mortgage holiday involve?

Mortgage holidays are not a new thing and have been available for some time where individuals have seen their financial situation change due to personal circumstances such as ongoing illness or the loss of a job. In these scenarios it is always best to talk to your mortgage lender about having a break from or a reduction in payments. There are also mortgages on the market that are designed to allow you to take a payment holiday if you have previously overpaid your mortgage and effectively built up “credit” on your account or if you can offset the mortgage against some savings. However you should never make a decision to stop or reduce your mortgage payments before you have agreed to it with your lender first.

Is a mortgage holiday a good idea?

The main benefit of a mortgage payment holiday is that it can provide a short-term solution when experiencing financial difficulty. This can offer valuable breathing space when working out finances and planning next steps.

There are other things to take into consideration when you’re reducing your payments, or pausing them. The payments are only delayed, in most cases this means that the interest is still being charged on your outstanding balance. This means it is likely that your outstanding mortgage balance you have to pay back will be higher after the payment holiday than before.

Does a mortgage holiday affect credit score?

In most cases, taking a mortgage holiday should not appear on your credit report. A mortgage holiday isn’t treated the same as a missed credit payment as it’s a pre-agreed change in your repayments schedule with your lender. If your mortgage holiday period has finished and you’ve started to miss repayments, or repayments are late, this might have an effect on your credit score. However, if you have received tailored support after receiving help with the government mortgage holiday scheme, this can go on your credit report.

This article was written on 22 June 2021; all information was correct at the time of writing.

You’ll find further information on mortgages and repayments on our Knowledge Centre, and up-to-date guidance on the government’s mortgage holiday scheme on their site.

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