Mortgages  

How mortgage payment holidays work

  • Describe how the mortgage payment deferrals system works
  • Explain the impact of mortgage payment holiday on one's creditworthiness
  • Describe how long the mortgage payment holiday will last
CPD
Approx.30min
How mortgage payment holidays work

Mortgage payment holidays were introduced at the start of the pandemic in March and were extended in early June, as a way to help people struggling, as their incomes dropped or ceased altogether.

Mortgage lenders responded by announcing support if a borrower’s income has been affected by the coronavirus outbreak, including a repayment holiday of up to three months.

This includes buy-to-let mortgages.

The mortgage payment holiday would provide flexibility in repaying the mortgage by allowing borrowers to stop or reduce their monthly payments for up to three months.

This could provide much needed help if borrowers need it, but it will not be suitable for everyone and it is not free money.

Applying for a payment holiday unrelated to coronavirus.

If the borrowers are asking for a mortgage payment holiday for a reason unrelated to coronavirus, there are different rules in place. Borrowers should make sure they talk to their mortgage lender and clearly understand any impact before they make a final decision.

Applying for a mortgage payment holiday 

Borrowers should contact their mortgage lender and tell them that they are experiencing payment difficulties due to coronavirus.

There will be a fast track approval process in place and borrowers will not need to provide evidence or have an affordability test. Borrowers will get a quick decision.

Any unpaid interest will still need to be paid back but borrowers will not have to worry about any additional fees or charges.

The mortgage lender will discuss any sums covered by a payment holiday, increases in the borrower’s monthly repayments and any increase in the total amount payable under their mortgage contract once the payment holiday has ended.

The mortgage lender should explain the impact of any option on your monthly payments or the term of your mortgage. They should also discuss options for you to choose an alternative means of repaying the amount if this is more suitable.

If borrowers are currently behind with their mortgage payments this does not exclude them from applying for a mortgage payment holiday if this is appropriate for their circumstances. 

If borrowers are already on a mortgage payment holiday because their finances have been affected by the coronavirus outbreak, they might be able to get this extended by a further three months. However, it is in the borrower’s interests to start their repayments again if they can afford to do so.

If a borrower’s finances have been affected by coronavirus, and they have not yet taken out a mortgage payment holiday, the deadline for applying for one has been extended to 31 October.

At first, they will be given a payment holiday of up to three months, but if they are still experiencing payment difficulties at the end of this period, they may be able to get it extended by up to three months.