What the mortgage payment holiday extension means for you

The Financial Conduct Authority (FCA) have recently announced that mortgage holders can seek further repayment holidays following the government’s announcement of a second lockdown. This measure is meant to help borrowers who are struggling because of the financial consequences of the pandemic.

If you’ve been affected financially by the lockdown and are struggling to make mortgage payments, you might be tempted to take advantage of the holiday. If you are, here’s everything you need to know about what the mortgage payment holiday extension means for you.

Mortgage holders are struggling to keep up with payments

The lockdown caused by the coronavirus has caused massive economic disruption in the UK during the previous few months and many mortgage holders are feeling the impact.

According to a survey by the Joseph Rowntree Foundation, reported by the BBC, a fifth of mortgage holders in the UK were concerned about their ability to keep up with their mortgage payments due to being furloughed on reduced pay or losing their jobs entirely.

As a response to this, the government have announced that people who were struggling financially due to the coronavirus could take a three-month holiday from making mortgage payments, which was extended to a six-month holiday in May. Many people took up this offer, with lenders granting around 2.5 million mortgage payment holidays.

The recent decision by the government to implement a second national lockdown has led to the FCA instructing banks and other lenders to extend payment deferrals on mortgages for an additional three months.

Your eligibility depends on whether you’ve already had a mortgage holiday and how long for

Whether you can take advantage of this opportunity depends on whether you’ve already had a mortgage holiday and, if you did, for how long.

  • If you have not already taken a mortgage holiday since the government announced the spring lockdown, you are now eligible to apply for up to two three-month payment deferrals.
  • If you’re considering taking a mortgage payment holiday, you have until 31st January to apply. During this period, any deferrals will not be counted as missed payments on your credit report.
  • Alternatively, if you already have a payment holiday currently in place, or you’ve taken a holiday but are now making repayments, you may be eligible for another three-month holiday.
  • However, if you’ve already had two three-month mortgage holidays then you are not eligible for a further one, even if you’re continuing to have financial difficulties.

If you’re still struggling to make payments on your mortgage after the payment holiday, you should consider talking to your bank about tailored support. This support can include:

  • Moving your mortgage to interest-only for a period of time
  • Deferring your interest payments for a period of time
  • Extending your mortgage term, which would reduce your monthly payments.

A mortgage holiday can have a negative impact in the long term

If you’re struggling financially due to the impact of the lockdown, you may be considering taking a mortgage payment holiday. However, while such a holiday can have its uses, it isn’t always the wisest thing to do as it can have negative long-term consequences.

For instance, during the mortgage holiday, even though you wouldn’t be making payments, the interest on your mortgage would continue to grow, which means it may cost you more in the long run. We have previously discussed this issue.

When your mortgage holiday eventually ends, you may also have to pay larger monthly payments as the interest on your mortgage would have continued to accrue during the payment holiday. This could lead to your household finances becoming more stretched.

Furthermore, while the mortgage holiday may not affect your credit record, it may negatively affect your ability to get credit in the future.

The reason for this is because one of the factors that lenders consider when you apply for a loan is your previous payment history. If there is a three- or six-month gap in your history, it will show that you had financial difficulties and had to take a mortgage payment holiday. This could lead to a lender being less likely to approve a future loan.

However, it is important to bear in mind that this is not the case with all banks. Some banks, such as Barclays, have stated that taking a mortgage payment holiday with another lender will not reduce your chances of getting a loan with them.

It is not always advisable to take a mortgage holiday as the long-term costs can outweigh the short-term benefits. It is for this reason that the FCA has advised borrowers that if they can make mortgage payments, they should continue to do so.

Get in touch

If you’re considering taking a mortgage holiday but aren’t sure if it’s the right decision for you, we can help. Email enquire@london-money.co.uk or call us at (0207) 808 4120 to find out more.

Please note

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.