At a time where the cost of living has increased dramatically, it’s understandable that people may be struggling to pay their mortgage. For some people, a mortgage payment holiday could be a welcome solution to reducing their financial burden in the short term. That said, it’s important to understand how mortgage repayment holidays work and why you should only consider one if absolutely necessary.
A mortgage payment holiday is a break from making your regular monthly mortgage repayments. It can give you some temporary breathing space if you’re struggling financially - but if your financial problems last more than a few months, you’ll need to discuss another solution with your lender.
Not all mortgage lenders allow mortgage payment holidays, so it’s important to check your terms and conditions, or ask your lender if it’s unclear. Many people took advantage of the government-led national mortgage payment holiday during the early part of the Covid-19 pandemic, but lenders are no longer obliged to offer this.
Although a mortgage payment holiday is a legal agreement between you and your lender, it’s important to understand that the payments will still show up on your credit record as missed - which could affect your credit rating!
It’s also important to consider that the interest will continue to accumulate while you aren’t paying. As the outstanding balance from the payment holiday is added to your overall mortgage balance, and interest is charged on your total mortgage balance, you will also pay more interest overall than if you hadn’t taken one.
The majority of lenders will offer as short of a mortgage payment holiday as possible, as they are only considered a short term solution to financial issues.
This will typically be between one and six months, but in some cases, it may be possible to get a repayment holiday as long as 12 months.
Not all mortgage deals allow customers to take payment holidays, and those that do will have individual criteria you’ll need to meet to qualify for one. This could include any or all of the following:
Be experiencing financial difficulties – lender’s won't usually offer repayment holidays if you’re not in financial difficulty and just fancy a break, but it’s worth checking the terms
You don’t ask for too long - most lenders will only consider this as a short term break from payments
Have had the mortgage for a certain time - You won’t usually be able to take a repayment holiday within the first year of your mortgage, but the length of time (or number of payments) you need to have made to qualify can vary
Meet a minimum LTV requirement – Some lenders will only allow you to take a mortgage holiday if the current loan-to-value of your mortgage (not when you took it out) is below a certain limit, often around 80% LTV
To have previously overpaid your mortgage - some mortgages only allow for mortgage holidays if you’ve previously made overpayments - in essence building up credit that you can use if or when you need to
Not be in arrears with your mortgages - If you’re already in mortgage arrears you won’t qualify for a mortgage payment holiday with most lenders
You have at least 12 months remaining on your mortgage term - you won’t usually be able to take a payment holiday if you have less than 12 months remaining when the break ends
Your property isn't currently rented out - some people with residential mortgages can use a consent-to-let to rent out their home in the short term, e.g if they are working abroad. If this is the case you probably won’t qualify for a repayment holiday. Buy-to-let mortgages also don’t usually have a repayment holiday facility
You haven’t taken a mortgage holiday in the past year - some lenders won’t allow more than one payment holiday for the whole duration of the mortgage, but others will allow a few more. You won’t usually be able to take more than one break in any year though
You haven't extended the term within the past year - you won’t usually be able to take a payment break when you’ve recently extended the term of your mortgage
You haven’t extended your borrowing in the last year - as above, lenders are likely to consider a payment break too risky in these circumstances
Your don’t have a shared ownership mortgage - this type of mortgage does not usually allow for payment holidays in the terms and conditions
Your mortgage is not being paid by benefits - most lenders will not allow a repayment holiday if you receive government benefits to pay your mortgage directly
*Please note that this is not an exhaustive list and that your mortgage lender may have additional criteria that are not mentioned above.
The first step is to check your terms and conditions, but if it’s unclear, approach your lender directly to ask whether they allow payment holidays and how to qualify for one. You will likely need the following information at hand:
Mortgage account number
Current monthly income and expenditure
Details of any debts
The reason you wish to take a payment holiday
The lender will usually decide on the maximum length of break, however, it’s worth asking if you have a reasonable period in mind. It’s important to focus on assuring them how the payment holiday will help you and when and how you will be able to begin repaying them again.
Your home can be repossessed if you fail to keep up with your mortgage repayments, but this is usually a last resort. Most lenders prefer to find a mutually beneficial arrangement to help you maintain your mortgage and home.
If you think your lender is being unreasonable in these circumstances, it’s possible to complain to the Financial Conduct Authority (FCA), which regulates banks and other mortgage lenders in the UK.
A mortgage broker may be able to suggest alternative options if you’re struggling with your mortgage repayments in the longer term, such as:
Remortgaging - There may be a more competitive rate available to you that brings your monthly payments down, especially if you have equity built up in your home
Temporarily switching repayment type - You may be able to change to an interest-only mortgage or part and part repayment plan without the need to remortgage. Lenders are usually reluctant to switch a residential repayment mortgage to an interest-only mortgage permanently, but will sometimes consider a temporary change to allow for financial breathing space
Extend your mortgage term - This will reduce your monthly payments by spreading the balance over a longer period. Bear in mind that this will mean paying more interest overall, however
Partial repayments - Some lenders may allow you to reduce your mortgage payments for a defined period of time. This may be preferential to a full mortgage repayment holiday as you’ll have a smaller balance to repay and a smaller increase in accrued interest
It depends on the terms of your mortgage and your personal circumstances. Many lenders do offer the facility to take a mortgage repayment holiday, but you will often need to have overpaid in the past, or meet other qualifying criteria, in order to make use of it.
Speak to your lender if your terms and conditions are unclear.
Unfortunately, unlike the coronavirus mortgage payment holidays, all other mortgage repayment holidays will appear on your credit file, even with approval from your lender.
Taking a payment holiday will therefore be recorded as missed or late payments on your credit file, which could impact future mortgage applications or your ability to remortgage.
When you resume your mortgage payments they will be higher than they were originally, as the missed payments and interest charges will have been added to the balance.
Your lender should send you a letter to inform you when your monthly repayments will restart and how much they will be.
Whilst you have a mortgage payment holiday in place you are usually unable to:
Change the repayment type of your mortgage
Let out the property
Extend your mortgage term
Be sure to check your individual terms and conditions for certainty.
Yes, you will pay more interest overall and your repayments will likely be higher than they were when you restart them. This is because interest continues to build up on your outstanding mortgage balance, which is higher due to the missed payments.
Although there was a government supported national mortgage holiday during the pandemic, it’s unlikely that another one will be offered as a part of the cost of living crisis.
Remember, that a repayment holiday is only a temporary solution and if you’re struggling financially in general, may actually add to your problems - as you’ll still need to pay back the difference.
A debt charity like StepChange may be able to offer you with more suitable options.