If you think you may not be able to afford your mortgage repayments due to short-term financial difficulties, you may be allowed to skip a certain number of repayments. This is known as a mortgage payment holiday and it must only be done with permission from your lender. Although this may seem like an easy decision, there are drawbacks to be aware of and other options to consider. In this guide, we’ll explain everything you need to know about mortgage payment holidays, including how they work, how your mortgage and credit will be affected, the pros and cons, and what other options you have.
What is a Mortgage Payment Holiday in the UK?
A mortgage payment holiday is where, with permission from your lender, you temporarily pause or reduce your monthly mortgage repayments for a specific period. This can be helpful if you’re facing financial difficulties, such as job loss, illness, or unexpected expenses
How Does a Mortgage Payment Holiday Work in the UK?
If your mortgage deal allows for payment holidays, you’ll need to contact your mortgage lender to request one. Your lender will then assessyour financial situation to determine if you qualify – they’ll typically look at factors such as your employment status, income, and payment history. If approved, you’ll agree on the length of the payment holiday, which is typically between 1 to 6 months but can be up to a year.
Assuming you’ve requested to pause your repayments, as opposed to reducing them, you won’t need to make any repayments during the agreed period. However, interest will continue to accrue on your remaining mortgage balance during the payment holiday, therefore, the amount you owe will increase slightly.
As you’ll be behind on payments after a payment holiday and your balance will have increased due to interest, you might need to increase your monthly repayments to get you back on track. If it looks like you’ll struggle to afford the increased payments, you may be allowed to extend your mortgage term to spread the cost over a longer period (thereby reducing your monthly repayments). You may also be able to choose a combination of these options – increasing your repayments slightly but also extending the term to ensure your monthly payment is affordable.
Will a Mortgage Payment Holiday Affect My Mortgage?
Taking a mortgage payment holiday can significantly impact your mortgage so it’s important to be aware of the implications when considering this option. Let’s have a look at some of the ways your mortgage may be affected below.
- Increased mortgage balance. While you’re on a payment holiday, interest will continue to accrue on your mortgage balance. This means you’ll owe more when the holiday ends.
- Higher monthly payments. To catch up with the accumulated interest and missed payments, your monthly mortgage repayments may increase after the holiday.
- Extended mortgage term. As mentioned, you may choose to extend the term of your mortgage to spread the cost of the missed payments and interest. This means you’ll be paying off your mortgage for a longer period.
- Potential impact on credit score. While payment holidays aren’t typically reported as missed payments, they can still affect your credit score. We’ll look into this further in the next section.
Will a Mortgage Payment Holiday Affect My Credit Score?
Generally, a mortgage payment holiday won’t negatively impact your credit score directly as it won’t be recorded as a missed payment. However, it can indirectly affect your creditworthiness. This is because the payment holiday can still appear on your credit report, which may suggest to future lenders that you’ve had financial difficulties recently. However, providing you keep up with your repayments after your payment holiday ends, you should be able to nullify any potential impact on your creditworthiness fairly quickly.
What Are the Pros and Cons of Mortgage Payment Holidays?
As you may have gathered, taking a mortgage payment holiday comes with benefits and drawbacks. We’ve covered some of these already, but let’s summarise all the pros and cons of mortgage payment holidays below.
Pros of Mortgage Payment Holidays
- Temporary financial relief. They provide breathing space during difficult financial times.
- Avoids arrears and repossession. They prevent short-term financial issues from escalating into bigger problems (provided you are able to sort your finances and repayment plan during the holiday).
Cons of Mortgage Payment Holidays
- Increased debt. Interest continues to accrue during the holiday, leading to a larger overall mortgage balance.
- Higher monthly repayments. After the holiday, your monthly repayments will likely increase.
- Extended mortgage term. After the holiday, you might need to extend the mortgage term, increasing the overall length and cost of your mortgage.
- Potential impact on credit score. While not directly impacting your credit score, it might raise concerns for future credit applications.
- Short-term solution. Payment holidays are only a temporary fix and don’t address the underlying financial issues.
It’s crucial to weigh up these factors carefully and consider alternative options before deciding on a mortgage payment holiday. We’ll discuss alternative options a bit later but our friendly mortgage advisors are also here to help if you need us.
Who Can Take a Mortgage Payment Holiday?
Typically, you can apply for a mortgage payment holiday if you’re facing financial difficulties. This may be due to a job loss, illness or unexpected expense.
The specific eligibility criteria can vary between lenders, but generally, you’ll need to meet the following conditions:
- Your mortgage is up to date. You should have a good payment history and must not be in arrears.
- You own and live in the property. The property should be your main residence.
- You meet your lender’s specific criteria. This might include factors such as the type of mortgage you have, the length of time you’ve had the mortgage, the amount you owe, and whether you’ve overpaid your mortgage or not.
Should I Take a Mortgage Payment Holiday?
You may want to consider taking a mortgage payment holiday if you’re facing a short-term financial crisis. Perhaps you’ve lost your job or you’re unable to work due to injury or illness, or you have a large unexpected expense or high-interest debt that needs to be prioritised. If any of these situations occur and you aren’t able to use savings to cover the shortfall, then a mortgage payment holiday may be the right choice for you.
Remember that a payment holiday is only a temporary fix, so you will need to address the underlying financial issues before the holiday ends. If you can’t, you’ll need to speak with your lender as soon as possible to see if there’s anything more they can do to help you.
If you’ve suffered a minor financial setback but you’re still able to afford your mortgage repayments, it’s recommended you don’t take a payment holiday if possible as it may lead to greater financial problems down the road.
How Do I Take a Mortgage Payment Holiday?
The most important point to remember is that you should never take a payment holiday without explicit permission from your lender. If you do, it will be marked as a missed payment, which could damage your credit score and lead to arrears. So the first step is to contact your lender and be open and honest about your financial difficulties. Explain why you’re requesting a payment holiday and how long you think you’ll need it for. Your lender will then be able to provide specific information about their payment holiday policy and eligibility criteria.
To find out if you’re eligible for a payment holiday, you’ll likely have to provide information about your current income, expenses and employment status, so have that information to hand when contacting your lender. Your lender will then guide you through the application process, which may involve completing forms or providing additional documentation.
Lastly, your lender will review your application and inform you of their decision. If approved, you’ll agree on the length of the payment holiday and how the skipped payments will be repaid.
If you’d like to talk through your situation before contacting your lender, please feel free to contact us and we’ll do our best to answer any questions you have and discuss your options.
What Other Options Are There Instead of a Mortgage Payment Holiday?
While a mortgage payment holiday can offer temporary relief, it’s essential to consider other options that might be more suitable for your situation. Let’s have a look at some of these options below.
- Reduced payments. Rather than skipping payments altogether, you may be able to reduce them instead for a period. This may look better on your credit report and also lead to less of a repayment increase down the line.
- Interest-only payments. Using the Mortgage Charter, you may be able to switch to an interest-only mortgage for six months. You’ll only pay interest but not the capital during this time, making your monthly payments much lower.
- Mortgage term extension. Using the Mortgage Charter, you may be able to spread your mortgage over a longer period to lower your monthly payments. This will make your mortgage more manageable but will mean you’ll pay more interest overall.
- Remortgage to a cheaper deal. You may be able to switch to a cheaper deal to make your repayments more manageable. This is particularly relevant if you are currently on your lender’s Standard Variable Rate, which tends to be the highest rate you can be on.
To learn more about the Mortgage Charter options mentioned above, please read our guide, ‘Should I Extend My Mortgage Term or Switch to Interest Only?’
You can also discuss these options with a professional by booking a chat with one of our friendly mortgage advisors here.
If you think your financial issues may not be temporary, you might need to consider long-term fixes such as selling assets, renting out a room, signing up for benefits or consolidating debts. In these circumstances, we recommend seeking advice from a financial advisor or debt counsellor.
The Bottom Line
A mortgage payment holiday is when your lender allows you to skip a certain number of monthly repayments. This can provide temporary relief if you’re struggling to afford your repayments due to unexpected circumstances. You’ll need to request a payment holiday from your lender and provide them with the required information to find out if you’re eligible. If you are, you should be able to take a payment holiday of between 1 to 12 months. It’s essential to have a plan in place to manage the increased costs when the holiday ends or seek permission to extend your mortgage term. There are other options that can help with short-term financial difficulties such as those provided by the Mortgage Charter – you can learn more about these options here. You can also discuss your situation with one of our advisors who will help you assess your options and make the right decision. Our advisors will also be able to see if you’re eligible for a cheaper mortgage deal, which could help you now and in the long run.
At Michael Usher Mortgage Services, we’ve been helping people throughout Surrey, Hampshire and Berkshire for over 30 years! We’re not affiliated with any particular lender, so we can access a comprehensive range of mortgages from across the market to find a deal that suits your needs. We’ll guide you through the process and liaise with your lender, estate agent and solicitor to ensure your application goes as smoothly as possible, and we can also help to protect your mortgage with our FREE Insurance Service.
Talk to one of our friendly mortgage advisors for free to get going quickly. Our head office is on Frimley High Street, but we can also help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
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Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will depend on your circumstances but will be agreed with you before proceeding.
