Mortgage holidays
If you need a temporary break from your mortgage payments, you could apply for a mortgage holiday. Read our guide to understand the pros and cons of taking a mortgage payment holiday and how to apply for one.
If you need a temporary break from your mortgage payments, you could apply for a mortgage holiday. Read our guide to understand the pros and cons of taking a mortgage payment holiday and how to apply for one.
What is a mortgage holiday?
A mortgage holiday is when your lender agrees to let you have a short break from repaying your mortgage, though they’re not as straightforward to get agreed as they used to be.
A mortgage payment holiday could help you manage a temporary change in your financial circumstances. For example, it could help relieve the financial pressure if you’re facing a reduced income during maternity leave, or you’ve been made redundant and need some breathing space while you find a new job.
But it’s important to be aware that taking a mortgage holiday will increase the amount that you owe on your mortgage overall. And once the holiday is over, it could mean higher monthly repayments or a longer mortgage term. It could also have a negative impact on your credit rating.
How does a mortgage payment holiday work?
When you take a mortgage holiday, your lender stops your repayments temporarily. But interest will still build up on the balance of your mortgage.
Because you’re not paying off any of the balance for a period, you’ll pay more interest overall on a repayment mortgage given it is usually charged on your outstanding daily, weekly or monthly balance. When you make payments your balance normally reduces each month, meaning you’re charged less and less interest as time goes on. But if you’re not paying the mortgage then your balance won’t drop, meaning you’re faced with more interest than you would have been charged had you made payments.
On an interest-only mortgage you’d also pay more overall as any payments not made get added to the balance, with interest then charged on a higher sum.
The word ‘holiday’ might conjure up the idea of pressing the pause button. But, in most cases, your mortgage term (or length) stays the same. That means at the end of the payment holiday, your monthly mortgage repayments may go up to reflect the potentially higher outstanding balance.
If your financial circumstances have improved at the end of the holiday and you can afford to do so, you may be able to overpay on your mortgage to make up the payments you missed. That way, you can reduce the outstanding balance and pay less interest over the long-term.
Did you know…? In 2020, mortgage lenders gave over 1.6 million payment holidays to UK homeowners who were struggling financially due to the COVID-19 pandemic. |
Can I take a mortgage holiday?
It depends on the terms of your mortgage and your lender.
When deciding whether you can take a payment holiday, mortgage lenders may consider factors including:
- How long you’ve held a mortgage with them
- Whether you’ve previously overpaid on your mortgage
- If you’ve taken any previous mortgage holidays and, if so, when
- If you’ve previously borrowed more on your mortgage or extended the term
- If the property is your main home or you let it out
- How much you still owe on your mortgage and the loan to value ratio
- If your mortgage payments are up to date and whether you’ve missed any recent payments
- If you receive any help from the government towards your mortgage payments.
Can I underpay on my mortgage?
Some lenders may let you ‘underpay’ on your mortgage for a while, even if they don’t allow mortgage holidays. But you normally need to have overpaid on your mortgage in the past to qualify for this option.
How long can you take a mortgage holiday for?
It depends on the terms of your lender and your circumstances. Some mortgage lenders could give you payment breaks of up to 12 months.
But lenders may want to understand the reasons why you want to take a payment holiday to make sure it’s the right decision for you.
Take the example of a couple with a mortgage who’ve recently had their first child.
They’re able to stretch their budget to cover their mortgage payments while receiving statutory maternity pay for 39 weeks. They apply for a mortgage payment holiday to cover the final 13 weeks of maternity leave, when they’ll be down one source of income.
Their lender sees that they’re eligible for a mortgage holiday and approves the payment break. The lender is confident that once both parents are working again, they can resume making their repayments.
How to get a mortgage holiday
If you’re considering taking a mortgage holiday, it’s important to go through your lender and follow the correct procedure. Don’t simply cancel your direct debit. Missed payments can damage your credit score and could ultimately lead to your home being repossessed.
Here’s how to apply for a mortgage holiday:
- Check the terms of your mortgage to see if a payment holiday is an option. Your lender may have further eligibility criteria listed on their website that can give you an idea if you’re likely to be approved.
- In most cases, you’ll need to call your mortgage lender and apply for a payment holiday over the phone. It’s likely that you’ll need to give them details such as:
- Your mortgage account number
- Your monthly income and expenses
- The reason you need to take a payment holiday
- When you want the payment holiday to begin. - Your lender will decide whether to grant you a payment holiday and give you details of any further steps you need to take.
- Towards the end of your payment holiday, your mortgage lender should contact you to let you know what your new monthly mortgage payments will be.
- At this point, you should make sure that you have a direct debit or standing order set up to cover the payments.
Are mortgage holidays a good idea?
If you’re experiencing temporary financial struggles, then a mortgage payment holiday could help you get back on your feet.
But taking a payment holiday means that your monthly repayments will often go up and your mortgage will cost more overall. If you can afford to continue paying your mortgage, then that is often a better option.
A mortgage payment holiday isn’t suitable if you’re facing a longer-term change to your household income. And it normally isn’t an option if you’re already behind on your mortgage payments.
Talk to your lender if you’re having trouble making your mortgage payments. You can find out where to get free debt advice at MoneyHelper.
Advantages of a mortgage holiday
- It could relieve financial pressure temporarily while you get back on your feet after being made redundant, for example.
- It could allow you to prioritise urgent debts in the short-term and create a budget to get your finances back on track.
- It could give you breathing space if your income is reduced temporarily – due to maternity leave, for example.
Disadvantages of a mortgage holiday
- You’ll still incur interest during your mortgage holiday, so your mortgage will cost more overall.
- Your monthly repayments will normally go up at the end of your payment holiday and you may not know in advance by how much.
- Only useful as a short-term solution. It won’t help you resolve any long-term problems with your finances or debt.
- Taking a mortgage holiday could appear on your credit record and may affect your chances of borrowing in the short-term.
Does a mortgage holiday affect your credit rating?
Credit reference agency Experian says: “A payment holiday will usually appear on your credit report and will likely affect your credit score. This can make it harder to take out credit in future.”
So before you agree to one, check with your lender to see how a payment holiday could affect your credit score.
For more information on the benefits of a good credit score and what you can do to improve yours, read our guide on how to build your credit score.
Regardless of credit score, a lender may be able to tell anyway just by looking at bank statements if there is a pause in payments.
Struggling with debt? Read our debt help guide
Is debt giving you sleepless nights or are you struggling to keep up with lots of payments? Then we’ve lots of ways that might give you comfort in our debt help guide, such as free debt charities and tips on how to budget.
Frequently asked questions
Will a mortgage holiday affect remortgaging?
Taking a mortgage holiday could affect which remortgage deals are available to you.
Payment holidays may be visible on your credit file to other lenders and could impact your credit score. So taking a payment holiday can give the impression that you’re under financial strain. This makes you a higher risk to lenders and may affect the deals they offer you.
Over time, the impact of the payment holiday should reduce, assuming you keep up with repayments once back to normal.
Can I take a mortgage holiday on maternity leave?
If a payment holiday is allowed under the terms of your mortgage, you may be able to take one to reduce financial strain while you’re on maternity leave.
But it’s important to weigh up the pros and cons before you take a mortgage holiday and carefully think about the consequences.
Can I get a mortgage holiday extension?
You may be able to ask your lender for an extension to your mortgage holiday. But it’s up to it to decide if you’re eligible for one.
Payment holidays are only intended to help you navigate temporary financial struggles. If your circumstances have changed and you’re struggling to make your mortgage repayments, speak to your lender. There may be other options that could help you.