Over a million homeowners have taken mortgage payment holidays as their income has dried up in the wake of the Coronavirus pandemic. If you're thinking of doing the same, here's everything you need to know.
What is a mortgage payment holiday?
A mortgage payment holiday means your lender will let you off your repayments temporarily, reducing your monthly outgoings and giving you some valuable breathing space.
Traditionally, most people applied for such a break when faced with unexpected expenditure, or perhaps when they changed their job, were made redundant, took a career break or went on maternity leave.
However, given the catastrophic impact the Coronavirus pandemic is having on so many people's finances, there's been a massive spike in payment holidays being taken for similar reasons.
At the latest count, more than 1.2 million – one in nine – struggling homeowners have done so according to UK Finance, the organisation that represents the banks.
If you've found your income has been slashed and are considering taking a payment break, we talk you through the process and highlight some of the risks involved.
Who can get a payment holiday?
It's worth stressing that banks and building societies aren't legally required to offer everyone a mortgage payment holiday no questions asked.
It's a voluntary arrangement designed to help those in need, so don't simply cancel your direct debit and assume all will be taken care of.
In short, if you're up to date on your payments you'll be offered a holiday of up to three months (this is also available to landlords on their buy-to-let properties) but you'll have to request it.
If you're in arrears you may well still qualify but it's more important that you contact your bank to discuss your options.
Payment holidays aren't free
Despite the positive-sounding name, these 'holidays' will cost you.
That's because interest still accrues during the break so you'll have to pay more back and your monthly payments will increase after the holiday has ended.
These figures assume the interest rate stays the same throughout the mortgage term.
How do you apply for a mortgage holiday?
Things have developed so quickly that the banks haven't managed to put standard processes in place.
Most homeowners have been advised to phone their bank to set up their payment holiday.
However, many customers have struggled to get through as banks are dealing with a significant rise in calls while staff numbers have been temporarily reduced.
Thankfully, some banks will allow you to apply online (or at least complete part of the process in this way), so it's worth taking a look at your bank's site to check your options before braving the phone lines.
For example, Halifax customers can fill in this form and the bank says it will text them within five days to let them know if their repayment holiday has been approved.
Your credit rating is safe
The good news is that all the credit rating agencies have pledged that no one taking a payment holiday will have their score negatively impacted as a result.
Have you applied for a payment holiday? How did you find the experience? Let us know in the comments section below.
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