How mortgage holidays work in the UK

Over the years, banks and other lenders have created various ways to keep people in their homes, even if they can no longer afford their payments. One of the most common is the mortgage holiday.

Instead of being required to make payments on their loan, borrowers are allowed to put their payments on hold for a certain period of time. This can be a great way to stay in your home, especially if you are facing a difficult financial situation.

During a mortgage holiday, the borrower does not have to make interest payments for a set period. This can be useful for borrowers who are late on their payments, or who need a short term solution to their finances.

Other holidays allow borrowers to make interest-only payments for a set period, which is useful if you have large amounts of interest accumulating on your mortgage.

What is a mortgage holiday?

A mortgage holiday refers to a period of time when a mortgage is temporarily reduced or forgiven. Most mortgage lenders offer some form of payment holiday for customers who are in a financial crisis, such as a period of unemployment.

During a holiday, the interest and capital repayments on the mortgage are temporarily reduced or forgiven so that the borrower can catch up on payments or resolve financial difficulties. The length and conditions of a holiday may vary depending on the lender. However, a holiday generally provides enough time for borrowers to catch up on missed payments or address financial difficulties.

In normal circumstances, the majority of customers in the UK are required to make a minimum number of monthly repayments on their mortgage, or they will be in danger of defaulting on their loan.

Does a mortgage holiday impact your credit score?

Over the years, the UK media has regularly carried stories about the negative impact that not paying your mortgage can have on your credit score. It can also have a significant impact on your credit score if you apply for a mortgage holiday.

There are a number of negative consequences that can result from taking out a mortgage holiday: – It will show on your credit report and negatively impact your credit score, which could impact your eligibility for future credit applications.

Can you qualify for a mortgage payment holiday?

You are no longer able to apply for a COVID-19 mortgage payment holiday. If you meet certain conditions, however, you may still be eligible for a mortgage payment holiday.

The ability to take a payment holiday, the duration of that holiday, and the conditions you must meet first will depend on; your mortgage lender, contract and financial circumstances.

In order to qualify for a mortgage payment holiday, usually, you must have previously overpaid on your mortgage, meaning you paid more than your agreed monthly payments for a period of time. This allows you to build up enough credit to take a break from payments.

However, if you are temporarily struggling to meet your payments, due to a change in your circumstances, such as a redundancy or unprecedented world events such as the pandemic, it is possible that you can get a holiday on your mortgage repayments without previously overpaying.

You will not be able to qualify for a mortgage holiday if you are in mortgage arrears.

But, no matter what your circumstances are, if you are struggling to make repayments on your mortgage, you should contact your lender and they can help you come to an arrangement.

Things to consider when looking into a mortgage holiday

At the end of the payment holiday, your repayment amounts and payments will be higher than they were before the holiday due to the increased amount you will owe.

As a mortgage holiday is a temporary solution for those struggling to meet repayments, your credit file will be negatively affected. This could affect your ability to get credit in future.

During the holiday, when you’re not repaying your mortgage, you’re still accumulating interest on your remaining mortgage balance.

Applying for a mortgage holiday

If you are looking into applying for a mortgage holiday, check your terms and conditions to see if you’re eligible to take a break on payments. You can also check with your mortgage lender to see if you are allowed to take a mortgage holiday given your circumstances and the agreement of your loan.

Each lender has different criteria, but typically they will look at;

  • Often, you will have to have made repayments on your mortgage for a minimum length of time before qualifying.
  • The length of the mortgage holiday is usually at the lender’s discretion to fit your circumstances.
  • The size and value of your mortgage will also impact your eligibility.

Debt Advice

RH Financial Consultants does not offer debt advice, however for more information, you can get free impartial advice from Citizens Advice.

Taking a holiday on your mortgage repayments is only a temporary solution to help those in difficult times remain in their homes, and it can only be used when you have enough capital in your property to stop you from falling into unmanageable debt.