The government has announced it is extending its mortgage payment holiday scheme as the nation goes into another lockdown. It was originally due to end on 31 October 2020, but borrowers now have the opportunity to take advantage of the support until the end of March 2021, with the potential to extend until the end of July 2021.
In this article we outline who is eligible for the extended mortgage holiday, set out what the guidelines are for those who can't extend their payment break, explore the potential consequences of using the scheme and assess what borrowers can do if they are struggling to keep up with their debts.
What is a mortgage payment holiday?
Approximately 2.5 million mortgage borrowers have enjoyed a payment holiday since March 2020, when the government came to an agreement with lenders to help homeowners deal with potential financial hardship caused by the Covid-19 crisis. The scheme offers borrowers up to three month's break from making repayments, which shouldn't adversely affect their credit rating. It was subsequently extended in June, meaning people could either extend for a further three months - six months in total - or apply for the first time.
While it was due to close on 31 October 2020, chancellor Rishi Sunak has announced the scheme will continue to run until 31 March 2021, in line with a raft of other measures to support those struggling financially as a result of the pandemic. The Financial Conduct Authority (FCA) has also overseen payment holidays on other types of borrowing, which you can read about in our article "Payment holidays for credit cards and loans - should you take one?"
Can I take a mortgage payment holiday?
While the government may yet make further changes on the extension of the mortgage payment holiday support if lockdown restrictions continue, it has said it will be available to:
- Borrowers who have not taken a payment holiday since the scheme was introduced in March 2020
- Borrowers who have taken three months' break from their mortgage payments, but who haven't taken the full six months that has been available
If you are still in your first three-month mortgage holiday after 31 March 2021, you will be able to extend for a further three months when it does come to an end, up to the government's final deadline for all support of 31 July 2021.
What help can I get if I am not eligible to extend my mortgage payment holiday?
According to the FCA, lenders should move to offering "tailored support", reflecting the mortgage holder's individual circumstances. In practice, this means a process more akin to the one borrowers would have gone through when struggling with payments pre-Covid, where lenders may offer to extend the repayment term or restructure the mortgage to reduce the monthly payment. There is also the possibility of further short payment holidays on a case-by-case basis.
Crucially, while the government has reassured those who have taken a mortgage payment holiday since March that the arrangement will not appear on their credit report - and, indeed, has extended this reassurance for those taking up the scheme now - it does not apply to those who have already taken their six-month payment break but need extra support. Any extra measures the lender offers you are likely to appear on your credit report and could mean your credit score is compromised and you may struggle to secure a new mortgage product in the future, even if your short-term financial difficulties have been brought about by the pandemic.
Is it a good idea to take a mortgage payment holiday?
While mortgage payment holidays have been a useful tool to help people navigate through the initial stage of the pandemic, it has not been without its drawbacks. Problems include:
- While the mortgage payments have been frozen, the interest payable continues to accrue, meaning your repayments may increase once your normal payments resume.
- For most borrowers, the mortgage holiday means that the term of the mortgage has increased, meaning you will pay off your mortgage later and will pay more for it overall
- Although the record of the holiday doesn't appear on your credit file, it could still impact your creditworthiness, as lenders look at the bigger picture when judging eligibility, including scrutinising bank statements, which will show the gap in time when you weren't paying the monthly repayment. At a time when lenders are tightening up their lending criteria, this could be problematic when you look to remortgage
However, the bottom line is, if you are genuinely struggling to meet your monthly mortgage payments, you should consider taking a mortgage holiday. The alternatives - potentially missing a payment or accruing more debt by using other borrowing to pay your mortgage costs - will be far more damaging to your credit record and overall financial health than any ill-effects of taking advantage of the government support.
How do I apply for a mortgage payment holiday?
Each lender has its own criteria on how it processes requests for mortgage payment holidays or other forms of support, so the best place to start is on its website, where it should outline what it can offer and how to apply for it. That said, the vast majority of providers are requesting that those requiring a mortgage holiday also apply online, including details of the financial hardship they are under, because of the sheer number of applicants.
Most lenders are allowing those who are up-to-date with their mortgage payments to self-certify their eligibility for the payment holiday. This means it should be relatively quick and straightforward to do so. It is, however, still only advisable to take a mortgage holiday if you are in genuine need: it is not free money and you shouldn't apply if, in reality, you don't absolutely need it.
How much will a mortgage payment holiday cost?
As stated previously, while the mortgage payments are frozen, the interest continues to accrue, which means your monthly payments are likely to increase over the long term. To get an idea of how much this increase could be and how much additional interest you will end up paying over the life of the product, online mortgage broker Habito has created a useful Mortgage Holiday Calculator.
What can I do if I'm struggling to pay my mortgage?
If you haven't taken the full six months payment holiday and you are worried about how you are going to make the repayments, consider applying through your lender for the government mortgage payment holiday.
If you are no longer eligible for the scheme, the first port of call if you have concerns about being able to pay your mortgage is your lender who will be able to help you explore the various options they can offer to reduce the payment or offer short-term breaks from the payment schedule. The government is actively encouraging lenders to be responsible and to help their customers during this challenging time.
For details of organisations that can offer advice on dealing with mortgages and other forms of borrowing, read our article "Where to get free debt advice"