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Are mortgage holidays still available?
Yes, you can still apply for a mortgage payment holiday.
In response to the coronavirus crisis, mortgage lenders in the UK offered payment holidays to all of their customers with an easy application process.
Although the scheme ended in July 2021, it is still possible to get a mortgage payment holiday if you meet certain criteria, which will vary depending on the lender.
What is a mortgage payment holiday?
A mortgage payment holiday is a pre-agreed break from your normal monthly mortgage payments.
With a mortgage payment holiday, you can either make partial repayments or take a complete break from making payments, typically for up to six months.
If you're managed to make overpayments in the past, you may be able to make several underpayments rather than applying for a mortgage holiday - you'll need to speak to your lender to learn if this is an option for you.
How do mortgage payment holidays work?
A payment holiday can prevent you from getting into financial difficulties and may be useful if you're having trouble making payments.
It is a big decision, so make sure you understand how it will affect your financial situation.
If you're interested in a mortgage holiday, this is generally how it works:
- You contact your lender and indicate that you would like to apply for a mortgage holiday
- They will assess whether you meet the criteria for taking a mortgage holiday, for example, you have not missed any mortgage payments.
- If you are granted a mortgage holiday, you can either defer payments completely or make partial interest payments for the agreed length of time, typically up to 6 months.
- Before your mortgage holiday expires, your lender will write to you to confirm your new mortgage payments.
- You resume monthly mortgage payments on the date agreed.
Remember, you will still incur interest charges during a mortgage payment holiday. This means that the interest will be included in your total balance, and your monthly mortgage repayments are likely to increase as a result.
How can I qualify for a mortgage payment holiday?
Now that the Covid-19 mortgage payment holidays are over, the good news is that it's still possible to apply for a payment holiday if you're struggling with making payments on your mortgage.
Your mortgage lender will revert to making sure you meet certain criteria to qualify, for example:
- Not having taken more than 6 months of payment holidays before, and none within the past three years - excluding those under the Covid-19 scheme.
- You will need to be an existing customer of a certain length of time, for example, 12 months, and not have any additional recent borrowing.
- The property is your main home.
- You'll need to have a certain amount of equity in your home, for example, a 75% Loan to Value.
- Everyone on the mortgage agrees to the payment holiday
- You are currently up to date with your mortgage payments
How can I apply?
The process will vary depending on the mortgage lender, but commonly you can apply by telephone banking, online banking or by post.
You may need to provide some additional information for the lender to decide whether they can help you, but this will depend on your personal circumstances.
Before you apply for a mortgage payment holiday, we advise that you consider the following:
- You'll still be responsible for paying interest on your loan. This means that your total balance will increase and, as a result, your monthly repayments will likely increase when the holiday ends.
- If you miss payments without having an agreed payment holiday in place with your lender, this could be classed as a default. This means that you are likely to have difficulties applying for other types of credit in the future.
What happens next?
If your application is successful and you meet the eligibility criteria, the lender will write to let you know that a payment holiday has been agreed upon so that you can either make partial payments or have a payment break.
Please note that if you miss monthly repayments without getting the prior agreement of your lender this will class as a default and will show on your credit file as a missed payment.
How long will a payment holiday last?
A payment holiday can last for up to six months, depending on the lender's terms and conditions.
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How will a mortgage payment holiday affect future monthly payments?
During a payment holiday, your mortgage will still incur the interest which will be added to the balance that you owe. This means that your monthly mortgage payment is likely to be higher than if you didn't take the payment holiday.
If you find you are still struggling or your financial circumstances have worsened since your mortgage payment holiday, you may be able to reach a new, permanent agreement with your lenders that will reduce your monthly payment.
For example, if you were to extend the mortgage term this would reduce your monthly repayments, but you would pay more interest overall on your loan.
Will a mortgage holiday affect my credit score?
No, taking a mortgage payment holiday will not appear on your credit report and will not affect your credit score.
If you have a missed payment, however, lenders will report your payment difficulties to credit reference agencies which will have an impact on your credit file and will affect your credit report. This is why it is so important to contact your lender as soon as you find yourself in financial difficulty and unable to pay your mortgage.
Having missed payments on your mortgage is a red flag to future lenders and could even prevent you from getting a new mortgage in the future. If you simply cancel your monthly repayment or direct debit this will not class as a payment holiday - affecting your credit report.
If you feel a missed payment has been classified wrongly on your credit report, you can apply to have the record disputed to the credit reference agency.
What happens when your mortgage payment holiday ends
When your payment holiday ends, your lender will recalculate your borrowing and your monthly payments to account for the additional interest.
If you are struggling to make the increased monthly payments, you may be able to renegotiate your mortgage terms with your lender. If not, you will need to start making the same monthly repayments again.
Please note that if you find yourself in difficulty and unable to meet your mortgage repayment when a payment holiday ends it is important that you contact the lender as soon as possible. If you do not make a regular monthly repayment for a period of months, your mortgage provider will consider this to be a default.
You might be able to agree on an affordable repayment plan, for example to have reduced payments over a longer term.
Will I pay more interest if I take a mortgage holiday?
Yes, deferred payments under a mortgage holiday will add to the overall loan under your mortgage agreement, which means you will be charged interest on the larger outstanding balance.
As you continue to pay the interest on your loan, this will reduce gradually over time, but it can be very hard to clear this amount quickly.
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