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Mortgage repayment holidays

A mortgage payment holiday is a break from making your regular monthly mortgage repayments. It can give you some very useful breathing space if you’re struggling financially - although if your financial problems last more than a few months you will need to find another solution. We explain how they work.

Mortgage repayment holidays

Many mortgage borrowers have taken mortgage payment holidays this year after the government told banks and other lenders to give them to people affected by the Covid-19 pandemic. Under current rules, you can apply for a three-month coronavirus-related mortgage payment holiday until 31 October 2020. If you’ve already taken a three-month payment holiday since the government announcement in March, you can now claim another three-month break - meaning you can stop paying your monthly repayments for a total of six months if necessary. 

Just remember that, whatever the circumstances, a mortgage repayment holiday will end up costing you money in the long run, as the interest will keep being added to your mortgage, so it's important to weigh up all your options before taking one. 

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What is a mortgage payment holiday?

A mortgage payment holiday is an agreement with your lender that allows you to take a break, usually for between one and three months - but sometimes for up to 12 months, from your usual payment plan.

If you are granted a mortgage payment holiday lasting say three months, you won't have to pay anything towards your mortgage for the next three months.

However, the interest you should be paying for each of those three months will be added to your mortgage debt, so the amount you owe will be higher than it was before the payment holiday. 

How can I get a mortgage holiday?

Not all mortgage deals allow payment holidays. So check your mortgage's terms and conditions to see whether or not yours does.

If the terms of your deals state that you can apply for a mortgage break, there are a few things to bear in mind to improve your chances of being allowed to get a mortgage payment holiday:

  • Don't ask for one too soon

If you're still in the early stages of your mortgage repayments, say, only a year or two in, then you're far less likely to be granted a mortgage payment holiday. The longer your track record of being a reliable customer, the more likely your lender is to trust you to start making payments in full again after taking a repayment holiday. Most mortgage providers also require you to have made your payments on time for a minimum of six months before you can apply for a repayment holiday.

  • You may not get one if you never make any overpayments

Overpaying on your mortgage can improve your chances of being granted a repayment holiday. Many mortgage deals allow you to overpay by a certain amount each year - say 10% of the amount owed - without incurring penalty fees. If you take advantage of this to regularly pay more than you need to towards your mortgage - thereby shortening the length of your mortgage term and reducing the interest you pay overall - you are much more likely to be given a mortgage holiday if you need one. In fact, some  mortgage providers will only give you a payment holiday if you have a history of making overpayments.

  • Make sure you don't miss any payments

You are unlikely to be offered a mortgage payment holiday if you are already in arrears on your mortgage. So while you shouldn’t apply for a mortgage break too soon after taking out a mortgage, it’s also vital to ask for one before your financial situation causes you to start missing payments. 

  • Don't ask for too many repayment holidays

It may seem obvious but if you take too many repayment holidays then you'll end up having to pay far more in interest later on. The interest will be higher in the months after your holiday repayments. In addition, you could push your mortgage's Loan to Value (LTV) over the limit. For example, if you have a mortgage that will give you a maximum LTV of 90%, and you take too many repayment holidays, then you'll be turned down.

If you are not sure, then double check with your lender first.

What can I do if I can’t afford my mortgage?

Your home can be repossessed if you fail to keep up with your mortgage repayments. However, lenders usually only use repossession as a last resort. Most would prefer to come to a mutually beneficial arrangement where possible, so when it comes to explaining your circumstances and situation, emphasise that it is temporary and you expect to be able to repay your mortgage in the future. 

If you think you are being treated unfairly, you can also complain to the Financial Conduct Authority (FCA), which regulates banks and other mortgage lenders in the UK. 

The most important message is to contact your mortgage provider as soon as you recognise you are having trouble keeping up with your repayments. It may suggest that you apply for a mortgage payment holiday. Alternatively, you might find it’s better for you to:

  • Ask for an extension on your mortgage term

If your mortgage term is 20 years, for example, then asking your mortgage provider to extend it to 25 years means your monthly payments will fall because you have longer to clear the debt. This approach may be preferred by your mortgage provider as you wouldn't have to miss any repayments, but it will still cost you extra in interest. So calculate the difference in cost between a repayment holiday and a mortgage term extension before deciding which option is best.

  • Look at other ways to reduce your costs

True essentials such as your mortgage and utility bills should always be your financial priorities. But before taking a mortgage payment holiday, take a good look at your monthly outgoings and work out if you can free up the money you need to cover your mortgage repayments elsewhere. 

  • Seek free debt advice

If you are really struggling to make ends meet, debt management advice could be a big help. There are lots of free debt advice services in the UK; try Citizens Advice or StepChange

Could I remortgage to get lower mortgage payments?

One option if you feel you are paying too much on your mortgage is to remortgage, which is to switch to a new mortgage provider and move to a new introductory deal.

However, if you are at the stage where you might need a repayment holiday, then remortgaging might not be a good idea.

Remortgaging on to a new deal with a lower interest rate can reduce your monthly mortgage payments, but to remortgage you will also face various costs - including legal charges and fees to set up the new mortgage.  

So even though the savings you can make by remortgaging will often outweigh the fees you have to pay, you’ll still need to find the cash to pay the fees to move to a new mortgage deal. 

If other lenders recognise you are struggling financially, for example because your income has dropped or you have started paying bills late, you are also unlikely to be accepted for the best deals - and may find it hard to find a new mortgage deal at all.

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