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Here’s what you need to know about mortgage payment holidays

Posted On June 9, 2020

Before June the 4th, taking a mortgage payment holiday meant that your monthly repayments would be paused for a fixed amount of time of up to three months. This benefit serves to offer those facing financial difficulties over the pandemic some breathing space and to help manage your finances during this time without needing to worry about some of your more significant outgoings. If you’re yet to request a payment holiday, you are able to do so up until the 31st October.

On June 2nd, the Financial Conduct Authority announced that they would be offering further support to borrowers due to the ongoing economical impact of COVID-19. This means that homeowners who are currently taking a fixed payment holiday will now be able to apply for an extension of a further 3 months if you’re still facing financial difficulties.

Who can take a mortgage payment holiday?
This option is available to all homeowners and buy-to-let landlords who are up to date on their mortgage repayments. You don’t need to have contracted the virus to be eligible for the payment holiday, this option is available to anyone eligible if you’re concerned that you may struggle to meet your mortgage repayments during these testing times.

You will not need to undergo any affordability tests, you simply need to self-certify that you or your tenant’s income has been affected by the coronavirus, either directly or indirectly.

How do I apply for a mortgage payment holiday?
To apply for a mortgage payment holiday, you need to contact your lender – you should be able to do this online or over the phone. It’s worth talking through all the options available at this point as you might find that moving your mortgage to interest-only payments for a fixed period might be preferable or extending the term of your mortgage. It’s important at this stage that you don’t cancel your monthly direct debit as this will then be considered as a missed payment and will impact your credit score.

If you need to apply for an extension on your existing mortgage payment holiday, your lender should contact you to discuss your circumstances and whether they have changed. They will then work with you to agree an affordable way for you to make up the deferred payments or discuss your other options with you, including the option to extend your payment holiday by a further 3 months.  

Does applying for a mortgage payment holiday affect my credit score?
No, a number of leading credit reference agencies have confirmed that a homeowners’ credit score will be protected when they take out a payment holiday. To do this, they have introduced an ‘emergency payment freeze’ which will ensure your credit score is maintained at its current level over this period.

If you find that your credit score has been affected, it’s important to raise this to your lender and they should amend this for you. You can also raise a dispute with the credit reference agency.

However, this doesn’t mean that your payment holiday will not play a factor in a lender’s decision making in the future. The fact you took a payment holiday will be taken into account in future affordability assessments, so it is worth taking this into consideration before taking one.

What are the disadvantages of taking a mortgage payment holiday?
As well as playing a part in future affordability assessments, taking a mortgage payment holiday will also mean that you will pay more in interest on your mortgage which means it will cost you more than it would have previously to pay it off. With this in mind, taking a mortgage payment holiday should be reserved only for those who really need it.

Can I take a payment holiday on my Home Insurance?  
Most mortgages make insurance a mandatory part of its terms and conditions, which means you simply cannot just cancel your Home Insurance if you’re struggling. With that being said, some insurers are offering policyholders the option to take a payment holiday on their insurance which remaining covered over that period of time.

To discuss your options with your individual Home Insurance policy, just get in touch with PH7 via email or telephone

Written by the PH7 Mortgages team

 

At PH7 mortgages, we pride ourselves on offering honest advice and information to help you find the mortgage that serves you best. 

We can help you work out how much you can afford and which type of mortgage you might need.

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