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

Once a payment holiday's been granted, it will last for three months.

This means that the borrowers do not need to make mortgage payments for that period of time. However, interest will still accrue while the borrowers are on the payment holiday, which will mean borrowers owe more once they start to repay again.

When the payment holiday period is over

The borrowers will see an increase in their monthly mortgage repayments once their mortgage payment holiday period is over.

The shorter the term left on their mortgage, the larger the increase in their monthly payments. Once the mortgage payment holiday is over, borrowers should consider the impact the higher mortgage repayments will have on their future monthly financial commitments.

Borrowers can arrange with their mortgage lender to take partial payment holidays.

If the borrowers can make some payments towards their mortgage, but they cannot pay the whole amount, they will be able to come to an agreement with their mortgage lender.

By doing this, less interest will accrue, which means future repayments would be lower than if they had taken a full payment holiday. 

If the mortgage lender thinks doing this would land borrowers in financial difficulty, for example if the extra interest borrowers accrue would create large amounts of extra debt, the mortgage lender will be able to deny borrowers the payment holiday and offer other help, such as freezing interest, or agreeing a repayment plan. 

The mortgage lender will contact borrowers towards the end of their initial mortgage deferral to discuss the next step, whether this is starting to repay in full, in part, or an extension of the mortgage holiday.

If the mortgage lender can not get in touch with the borrowers, it may assume that the borrowers can restart standard repayments and to decide how it will charge the borrowers for the extra interest that has accrued during the borrower's payment holiday. 

If a borrower’s mortgage lender contacts them towards the end of their mortgage payment holiday, they should make sure that they talk to the mortgage lender and tell them whether they can resume payments.

Creditworthiness

The initial mortgage payment holidays agreements will not be marked as missed payments on the borrower’s credit report – but they could still affect your creditworthiness.

The major credit reference agencies confirmed that the borrower's credit scores will be protected when they have an agreed payment holiday in place. 

Mortgage payment holidays will not be marked as missed payments on the borrower’s credit report, they could still have an impact on the borrower’s creditworthiness, as other mortgage lenders can still find out about them.