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

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

However, this protection will end on 31 October or, after the borrower's second three-month payment holiday if that is sooner and if the borrowers can not resume full repayments once the protection ends; then any new payment holidays or partial payments agreed with the mortgage lender will be reported on the borrower's credit report.

If you cannot pay, the mortgage lender will be able to repossess the borrower’s home.

The mortgage lender will be able to apply to the courts to repossess the borrower’s home. However, they cannot do this until November. The FCA's rules make it clear that this should be a last resort when all other attempts to find a reasonable solution have failed.

For longer-term issuers, it is worth the borrowers discussing changing their mortgage deal with their mortgage lender. Maybe they could extend the term of their mortgage.

Partial payments

Making interest-only or capital-only repayments during your mortgage holiday might be an option for some people.

This will reduce any increases in your monthly repayments compared to some other options once your mortgage holiday period is over, but you will still need to pay back any shortfall in your normal monthly payments.

If the borrowers are struggling and paying their mortgage will mean that they are unable to meet other bills or feed themselves are their family, then they should ask their mortgage lender for help. 

The FCA has published additional guidance for mortgage lenders, to ensure that consumers who have benefited from payment deferrals under the current guidance who still face financial difficulties, as well as those whose financial situation may be newly affected by coronavirus after the current guidance ends, continue to get the support they need.

The measures mean mortgage lenders will offer further short and longer-term support reflecting the circumstances of their customers.

This could include extending the repayment term or restructuring of the mortgage.

Where consumers need further short-term support, mortgage lenders can continue to offer arrangements for no or reduced payments for a specified period to give customers time to get back on track. This additional guidance came into force on 16 September 2020.

Where borrowers have taken, or are taking, payment deferrals under the existing guidance and require further support from mortgage lenders these further arrangements can be reflected on credit files in accordance with normal reporting processes. 

This also applies to borrowers newly affected by coronavirus who receive support from their mortgage lender after 31 October.

This will help to ensure that mortgage lenders have an accurate picture of consumers’ financial circumstances and reduce the risk of unaffordable lending. Mortgage lenders are required to be clear about the credit file implications of any forms of support offered to borrowers.