All mortgage lenders will provide a three-month mortgage payment holiday for borrowers whose household finances are affected by coronavirus.
By May 2020, 1.8 million people had taken a mortgage payment holiday.
If you have already had one and your finances are still affected, you can now ask for a further three months.
Ask your lender for a payment holiday
You have to ask your lender for this, a lender can’t apply it automatically because they don’t know if you are affected by Coronavirus. And not everyone who is affected will need the payment holiday.
It doesn’t have to be you who is directly affected – it could be your partner or someone else whose income helps pay the mortgage.
Lenders’ websites explain what you have to do. If you have a joint mortgage, it is likely that both of you will have to agree to the mortgage holiday.
Banks may differ in what they need to see show that you are affected, but it is usually pretty easy. You don’t have to be sick and you aren’t going to be asked to produce any medical evidence. For example:
- show the lender any emails from your employer about reduced hours, being furloughed or being made redundant;
- explain if your child’s school is closed;
- if you are self-employed, just give a short statement about how your business has been affected.
Some banks may suggest alternatives to a payment holiday that could be better for you if you can make some payments over the next few months.
For example, Barclays suggests some people may prefer to switch to an interest-only mortgage for a year. If you know it will take time for your income to get back to normal this could be a good option for you.
Interest is still charged – what happens at the end of the break?
Interest is still being added on – you just aren’t paying it during the break.
At the end of the break, you can ask for a second three month payment break if you need it or you can resume mortgage payments.
At that point you will need an arrangement to repay the payments you have missed and the small amount of extra interest you will have been charged.
The two main options are either to extend your mortgage term by three months or to spread the missed payments over the rest of the mortgage term. Talk to your bank about whether you have a choice between these.
Most banks are suggesting that the payments are spread over the rest of the life of the mortgage, see this article for some examples.
There is a calculator here that lets you see how much your monthly payment may increase if you choose to repay the three or six months missed payments over the current term of your mortgage.
If you have many years left on the mortgage, this isn’t usually too much extra.
But if there are only a few years to go, tell your bank if the larger payments will be more than you can afford and ask to have your mortgage extended by three or six months instead.
This won’t affect your credit score, but…
In May when the FCA (who regulates the lenders) announced that people could get another three months payment holiday if they need one, they explained what happens to your credit record with these breaks as follows:
“Under our guidance, firms should not report a worsening status to credit files if you take a payment freeze. This should help make sure that there is no long-term negative impact on your credit file if you are able to get back on track at the end of a payment freeze…”
So a break or a reduced payment will not show as a “missed payment” or a “default”. And the payments you have missed will not show as “arrears”.
But the FCA added:
“You should also remember that credit files aren’t the only source of information that lenders can use in lending decisions. Factors other than payment history may also be relevant.”
These “other factors” include:
- the details of the payments you make will be on your credit record;
- some lenders make checks on credit applications including trying to verify your income;
- some lenders, especially mortgage lenders, ask for bank statements;
- some lenders ask for access to your bank details through “Open Banking”.
So the FCA is pointing out that even though your credit score will not be affected by taking a mortgage break, when you apply for credit in future some lenders may be able to see that you had problems over this period.
Mortgage payment holiday FAQs
Should I take a mortgage holiday so I can clear other debt?
That’s a hard question.
If you don’t pay your mortgage for 3 months, you can pay off a lot of an expensive credit card debt, or clear your overdraft. Which will save you money each month on interest.
Sounds sensible? There are two big problems with this…
- If you get into problems later and can’t pay your credit card or overdraft, you can simply get a payment break. But if later on you can’t pay your larger mortgage, your house is at risk.
- If you go on to spend more money on the credit card or your overdraft, it’s very easy to just end up with a lot more debts this way, not pay it off faster.
Unless you are VERY sure your finances will soon be normal again and VERY disciplined to not run up the debts again, it isn’t a good idea.
What if my mortgage fix is ending during the payment holiday?
Unless you can get a new fix, when a fixed rate ends, you go back to paying some other variable rate – for most mortgages, this is your lender’s Standard Variable Rate.
You should assume that you won’t be able to remortgage with a different provider when a fixed rate has ended if you are in the middle of a payment holiday.
Your current lender may be prepared to offer you a new fix. Or you may have to wait until the end of the payment holiday to be offered one.
You can get some help if you already have mortgage arrears
You will be offered help. But what that help is will depend on your situation.
If you already have a plan in place with your mortgage lender to repay arrears, you need to talk to the lender about how that can be changed because of a fall in your income over the next few months. The FCA, who regulates mortgages, says:
Customers in payment shortfall should not receive less favourable treatment than other customers.
This is what one reader reported in the comments below this article:
they have done a ‘concession’ which appears different from a payment arrangement in that our arrears, as reported to the credit reference agencies, will not get worse despite paying back less than a standard monthly payment. And the capital we are not repaying will not be chased for once we are back on an even keel, it will just get spread right over the remaining term. So that’s not bad.
“Can I get a payment break if I am in an IVA?”
Yes, you can. An IVA will have wrecked your credit score but that is irrelevant – your lender still has to offer a payment break. You can also get a break from your IVA payments, see IVAs and Coronavirus.
Should you take another mortgage payment break?
If you don’t need the break and you know your finances will be fine as you expect to be back at work soon, then it’s probably best to not take a further payment break:
- interest does build up and it will increase your repayments in future;
- future lenders may be able to see you took a break even though your credit score is not affected.
But if you can’t pay this, or it would be difficult and you feel unsure about whether your income will soon be back to normal, then the second payment break is simple to get and will give you much needed support in this difficult time.
What if I can’t get back to normal payments at the end of the second 3 months break?
At the end of August the FCA said it was proposing that when the second 3 month mortgage payments breaks ended, lenders would have to offer “tailored support”. That isn’t yet definite, but it will mean that there is no automatic thrid payment break for people with problems.
The regulator has banned lenders from going to court for repossessions until the end of October 2020.
If you know you won’t be able to pay the mortgage when your payment break ends, you will need to talk to your mortgage lender. But first talk to a debt adviser – don’t delay while your situation gets worse.
Contact your local Citizens Advice or phone Shelter.