Buy-to-let Landlords

What is a mortgage payment holiday? And how does it work?

April 6, 2020
Information published was correct at the time of writing

*As of 31st March 2021, payment holidays are no longer available

In just a few weeks, the Covid-19 pandemic has caused a level of disruption in the UK not seen since World War II. While the most immediate cause for concern has been around the health of our fellow citizens and the support needed for the NHS, the potential impact on the economy is also hugely important.

After a week of daily news briefings by the UK Government with a barrage of ever-changing policies and guidelines,  the Government announced the forced closure of all but the most essential of businesses. Millions of homeowners started to get worried. How would they pay the mortgage if they were out of work – however temporarily? The answer came on March 18 when Chancellor Rishi Sunak announced that homeowners would be able to apply for a three-month mortgage holiday. But what exactly is a mortgage holiday? And what are the pros and cons of applying for one?

A mortgage payment holiday is a payment break agreed between you and your lender. Typically, you might request one if you’ve temporarily had a loss of income or need to spend a sizeable amount of money (e.g. buying a new boiler).

Under Sunak’s directive, UK lenders are taking applications from worried borrowers looking for a mortgage holiday, though what they’re offering can differ. While success isn’t automatic – lenders still have the right to refuse the request.

On the face of it, a mortgage payment holiday can make sense and go some way to ease financial pressure. Not having to pay your mortgage for three months takes away a lot of stress: especially when combined with the other financial help packages the Government has brought in. Another plus is that as long you’re up to date with your payments, the process won’t affect your credit rating (though keep note of any correspondence just in case).

However, there are drawbacks. The most obvious is that while a mortgage payment holiday feels like you’ve been given a discount on your loan, the debt remains. And once the period ends, your monthly payments will be higher than before, thanks to the extra interest accrued.

If you’re worried about your mortgage because of the current crisis, an independent mortgage broker like Charles Cameron can help. Thanks to our years of experience in the sector, we can guide you through these difficult times, and explain the impact of taking a mortgage payment holiday for your personal circumstances.

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