With the recent guidance from the government to work from home where possible, it’s essential that you understand your options in case you’re unable to work and pay your mortgage for a period of time. One much talked about option is the taking of a mortgage payment holiday.
A mortgage payment holiday is an agreement with a lender where they allow you to temporarily stop or reduce your monthly mortgage payments.
What Are Payment Holidays?
A payment holiday allows you – as a borrower – to take a short break from having to pay towards your mortgage. Payment holidays have been around for a while and have been a feature offered by a number of mortgage lenders. They come with criteria concerning factors such as your mortgage contract and your financial circumstances. Often, in order to qualify you must have previously overpaid on your mortgage. With so many of us now being unable to work due to coronavirus, taking a mortgage payment holiday has become a widespread option.
You can find out whether payment holidays are a feature of your mortgage by looking in your current mortgage document. It’s also worth checking with your lender if you meet their criteria, as unfortunately this isn’t an option available to everyone.
Corornavirus and Mortgage Payment Holidays
With recent the changes that have come into action as a result of coronavirus, you may need to have a discussion with your current lender about the measures introduced by Chancellor Rishi Sunak if payment holidays aren’t a feature included in your current mortgage document. This recent change now means that all lenders will effectively be forced to offer payment holidays. This will undoubtedly vary from lender to lender and, in some cases, your lender may only offer a payment holiday if you’re unable to pay your mortgage in the short term.
Payment Holidays and the Effect on Credit Ratings
Following the Chancellor’s recent announcement, if you’re facing financial difficulties as a result of COVID-19 – and are therefore unable to pay you mortgage – taking a payment holiday will not have a negative impact on your credit rating. This is regardless of whether a payment holiday is already noted as a feature of your mortgage in your mortgage document, or not. Nonetheless, you’ll need to speak with your lender about their policy and what it means for you.
Applying for a Payment Holiday
If you’re looking to arrange a payment holiday through your lender, you must speak with them first. They’ll be able to give you information about their policy and the criteria you must meet.
Length of Payment Holiday
The length of your payment holiday will depend on the lender. A typical short break can range between 1 – 3 months but can also extend to 12 months.
History of Mortgage Payments
To qualify, you’ll often need to prove that you’ve made payments on time for a minimum period set by the individual lender.
Size of Your Mortgage
Your ability to take a mortgage holiday will depend on the size of your mortgage and the current value of your home. Some lenders will only allow a mortgage holiday if the LTV (loan-to-value) of your remaining mortgage is lower than 80%.
Alternatives to Payment Holidays
If you’re unable to take a payment holiday, there are many alternatives that you might want to consider:
Extending the mortgage term
Remortgaging to a lower rate of interest
More Information on Coronavirus and Your Options
For more information on these alternatives, read our comprehensive guide to coronavirus and your mortgage options.
If you’re still unsure, speak to an independent, qualified mortgage adviser before you make your decision. The initial discussion should be free and they’ll be able to guide you through your options, making a recommendation based on your circumstances as well as your current and future needs.