News & Insights

Call our expert advisers now
on 01702 533 400

Arrange a Call Back

Considering a Mortgage Payment Holiday – Think Wisely

Last week it was announced that homeowners taking a three-month mortgage payment holiday will be able to extend it for a further three months or start making reduced payments.

For customers still experiencing temporary payment difficulties due to coronavirus, the options will include a full or part payment holiday for a further three months.  People yet to apply for a payment holiday have until October 31st to do so.  Repossessions will also be banned until this date.

Whilst this will be welcome news for many, we urge you to think carefully about the potential repercussions before making a call to your lender.  You should be aware that:

  • A payment holiday is simply a deferment of 3 (or 6) months – it is NOT a saving.
  • You will be liable not only to catch up on the arrears, but also any interest charged.  This will result in a higher mortgage balance than if you had not taken out a holiday. 

Although mortgage holidays are providing a lifeline for many throughout this crisis, not everybody appreciates the true cost of taking a break from their monthly payments.  How much extra it will cost will depend on the size of your mortgage, the interest rate and how long you have left until your mortgage is paid off completely.  But remember, it is not free money!

During the lockdown, many of us will have made savings elsewhere (no morning coffee or costly travel expenses for example).  If you can make some sensible adjustments to your finances, you should hopefully be able to meet your mortgage payments, even if it is a squeeze.  As the nation gradually starts to open for business, restarting mortgage payments should be a priority.   

Writing in his latest edition of MoneySavingExpert.com weekly newsletter, financial expert Martin Lewis echoes this view with the following warning to homeowners, saying: “My rule on payment holidays is simple: IF YOU NEED ONE, DO IT, BUT ONLY DO IT IF NEEDED. And if you don’t need the whole holiday, you can do a partial holiday, e.g., ask to reduce what you pay by half.”

The potential impact on your credit score is another very serious implication to consider.  Whilst the Financial Conduct Authority (FCA) has confirmed that credit files will show consumers have been up-to-date with mortgage payments for the duration of a payment holiday, mortgage payment holidays could still inadvertently affect your credit worthiness.  Lenders may use sources other than credit files, such as bank account information, to take account of other factors in their lending decisions. This could include changes to income and expenditure, and any increased indebtedness as a result of interest accrued during the payment holiday.

Remember, if you are struggling, there may be other options available to you that will not have such detrimental ramifications on your ability to obtain future credit.  A remortgage or product transfer could make more financial sense.  If you urgently need funds to tide you over, debt consolidation using a second charge mortgage or equity release may provide a suitable option.

During this very difficult time, we want to do everything we can to help you.  If you need advice on your current mortgage, want to consider a product transfer or remortgage or insurance, please do not hesitate to contact us: 01702 533 400 or email enquiries@ingard.co.uk.