What are mortgage holidays, and how do you apply – whether because of coronavirus or due to another circumstance? A three-month mortgage holiday has been promised to all UK mortgage payers who are struggling because of Covid-19, but how does this work in practice, and what are the correct steps to accessing this form of coronavirus relief? We explain what mortgage holidays are and whether they are a good idea for you.
What is a mortgage holiday?
A mortgage holiday is an agreement with your mortgage lender that allows you to reduce or suspend mortgage payments for a period of up to six months (precise number of months is at the lender's discretion).
A mortgage holiday doesn't cancel those repayments, but simply defers them. The most common way to make those repayments after the holiday ends is by having them added to the rest of your mortgage loan, so you will see your future repayments go up by a small amount.
You can also opt to have your mortgage term extended to allow for the outstanding repayments to be made. Some people (and lenders) can also opt to make interest-only repayments for several months, which will make the amount added onto the final loan a little smaller.
Coronavirus mortgage holiday: how can I apply?
The application process for mortgage holidays usually involves an affordability assessment, however, mortgage payers struggling to pay because they've been affected by coronavirus will be fast tracked for approval by their lender.
You have to make sure, however, that you contact your lender about mortgage payment relief before you fall into mortgage arrears.
I'm not affected by coronavirus: can I still have a mortgage holiday?
Yes. Mortgage holidays are a longstanding practice typically appropriate in two case scenarios:
- The mortgage holder has been overpaying their mortgage and would like to take a break from repayments;
- The mortgage holder is struggling to pay their mortgage due to a job loss, going on maternity leave, or another circumstance seriously affecting their finances.
Mortgage holidays are not granted if you're already behind mortgage payments – although it's usually still possible to come to an agreement with your lender if you're in arrears, the terms of that agreement will be different from a mortgage holiday.
If you've been overpaying, on the other hand, the lender will typically grant you a mortgage holiday. It's up to you to decide whether the higher mortgage repayments in the future, or a longer mortgage term, is worth it.
Will a mortgage holiday affect my credit score?
Yes. A mortgage holiday will be recorded on credit file and may affect your chances of taking out loans in the future. If you were planning on remortgaging, it's best not to take out a mortgage holiday at least before you want to switch to a different mortgage. The same goes if you're planning on taking our a home improvement loan.
Alternatives to a mortgage holiday
The main alternative to a mortgage holiday is remortgaging or switching to an interest-only mortgage. Some banks are currently offering this option to people affected by coronavirus, and it's definitely worth discussing if you are anticipating longer-term difficulties paying.
Take a look at online mortgage specialist Habito's online comparison tool below – it includes remortgaging deals.