Given that the cost of living in the UK has been heightened for some time, many mortgage borrowers are feeling the pinch. If you’re struggling to make your mortgage repayments, a mortgage payment holiday could help give you some financial breathing space while you restructure your finances.
We look at how mortgage repayment holidays work, and the short and long term impact on your mortgage and credit score, should you choose to make use of one.
What is a mortgage payment holiday?
It’s exactly as it sounds, an authorised break from repaying your mortgages. Not to be confused with forbearance or a hardship arrangement, a mortgage payment holiday is a flexible feature of specific mortgage products. Often this type of mortgage also has other flexible features, such as allowing overpayments or underpayments.
How do they work?
This type of special agreement is not offered by all lenders, and is only available on flexible mortgages where the terms specify that they allow mortgage repayment holidays. It may also be referred to as a payment break or payment pause.
Mortgage payment holidays are a temporary arrangement, typically lasting for a set period of 1 to 6 months. It’s important to understand that during the ‘holiday’ period, your repayments are simply deferred. All missed monthly payments during the repayment break, and the interest accrued are added to your remaining mortgage balance. This means you’ll pay more interest overall versus not taking a break.
Who is eligible for one?
As well as meeting the general mortgage criteria for a product with a payment holiday feature, you’ll also need to meet the criteria to qualify for the break at the time of application. This means that you can’t usually plan a repayment holiday as a luxury, you’ll typically need to be experiencing financial difficulties at the time.
Criteria varies by product and by lender, but may include:
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You must be in current financial hardship
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Some lenders won’t approve a holiday if you’ve already fallen into mortgage arrears
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You only need a short term break from the repayments
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You will typically only be able to take 1 break in any 12 month period, or in some cases during the whole mortgage term
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Usually you will need to have had the mortgage for at least a year, and/or have at least 12 months remaining on the term
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Some lenders require you to have made previous overpayments in order to qualify to underpay or take a payment holiday
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You may need to have a current LTV of 80% or below, and not have extended your borrowing in the past year
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You must not be renting out your property, even in the short term
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You must not have a Shared Ownership mortgage
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You must not have your mortgage paid by government benefits
When are they a good idea?
Mortgage repayment holidays can be helpful under the following circumstances:
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If you need immediate financial relief they can free up temporary breathing space
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If you expect the hardship to be short lived, i.e you are being made redundant but plan to return to work soon afterwards
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You have big life expenses that are temporary, such as maternity leave or time off work for an accident or illness
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You are certain that you will miss your upcoming mortgage payment and want to minimise damage to your credit score - some lenders will still report this, but a discretionary agreement will look better than a missed direct debit
Alternatives to consider
While applying for a mortgage payment holiday can provide a comforting temporary cash flow for some people, it’s important to understand that they won’t suit everyone. They also won’t necessarily be granted by your lender, even where it’s a feature of your deal.
If you’re experiencing financial difficulties and don’t feel a repayment holiday is right for you, or you don’t qualify for one, we can look into a number of potential alternatives for you, and help you understand which is the best option for your circumstances.
This may include, but is not limited to the following:
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Remortgaging - If a more competitive rate is able to reduce your monthly payments, it may minimise your financial burden. This is particularly recommended if you’ve built up a good amount of equity in your home
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Temporary switch of repayment - some lenders will allow you to switch to an interest-only, or part interest, part repayment mortgage until your financial issues have eased
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Partial repayments - rather than taking a total repayment holiday, you may be able to temporarily reduce your repayments to make them more affordable
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Extension of your mortgage term - spreading your repayments out over a longer term than you originally agreed will reduce your monthly liability. However, this will also increase the overall interest charges on your mortgage
Get independent advice about your mortgage options
Do all mortgage lenders offer payment holidays?
No they don’t, it’s usually only where this is specified as a flexible feature on one of their residential mortgage deals. Here is a list of lenders who may offer mortgages with payment holidays:
|
Lender |
Payment holiday available |
Max Length of holiday term |
Criteria to meet |
|
Yes |
Up to 6 months (usually in 2 sets of 3) |
The mortgage must be at least a year old and your LTV must be 90% or below. You cannot be in arrears. |
|
|
Limited |
Typically 3 months |
Only if your mortgage was reserved before 3 March 2010. No facility for newer customers |
|
|
Limited |
Up to 6 months |
Must have a "Choices" offset mortgage product |
|
|
Yes |
Up to 6 months |
Subject to LTV limits and good payment history |
|
|
Yes |
Up to 3 months |
After 9 months of paying the mortgage you can take 1 month for every 9 consecutive full payments made |
|
|
Limited |
N/A |
May allow hardship arrangement Also allow underpayments if you have overpaid previously |
|
|
Limited |
N/A |
"Delayed Start" is their 3 months payment holiday for new mortgages only, for the first 3 months |
|
|
Yes |
N/A |
You would need their flexible mortgage product and may have to have overpaid |
|
|
No |
N/A |
N/A |
|
|
No |
N/A |
N/A |
|
|
No |
N/A |
N/A |
|
|
No |
May allow hardship arrangement |
||
|
No |
May allow hardship arrangement |
Should you take a payment holiday?
There is no ‘one size fits all’ answer to this question. Whether or not you should (and are able to) take a mortgage holiday will depend on your individual circumstances. For many people a holiday from mortgage payments may offer breathing space and prevent arrears, but if you don’t anticipate your finances will be any better within 3-6 months, it’s probably not the right choice for you.
A mortgage broker is key to finding the right way to restructure your mortgage payments. They can help you to understand every element of a repayment holiday, and if or how this would negatively impact you. For example, the fact that you can still experience credit issues, and that your future monthly repayment will increase to compensate for the missed payments.
We’ll assess your complete financial circumstances, look at your equity, and make solid recommendations to help reduce your financial burden, whether you need it temporarily, or for the longer term.
Get started now to speak to one of our friendly mortgage experts today.
FAQs
While it’s a legal agreement between you and your lender, the missed payments will still show up on your credit record - which could affect your credit rating, yes.