Coronavirus: mortgage payment holiday applications extended until 31 March 2021

Homeowners whose finances have been impacted by COVID-19 can use for mortgage payment holidays as high as 6 months, despite intends to end this kind of financial support on 31 October.

Here, Which? explains how the rules will work and offers suggestions about the advantages and disadvantages of taking out a mortgage payment holiday.

• Mortgage payment holidays: what’s happened so far?
• FCA proposes payment holiday extensions
• What is a mortgage payment holiday?
• Do I qualify for a payment holiday?
• Do I need to have had coronavirus to apply?
• Will I have to undergo affordability tests?
• What happens following the payment holiday?
• Alternatives to loan payment holidays
• Will deferring my payments affect my credit rating?
• What if my credit history is wrongly affected?
• Will a payment holiday affect future credit applications?
• How do I obtain a payment holiday?
• Will I have the ability to remortgage throughout a payment holiday?
• Case study: setting up a mortgage payment holiday

Mortgage payment holidays: what’s happened to date?

In March, the government announced UK homeowners suffering financial loss due to COVID-19 could take a three-month payment holiday on their own mortgage.

Applications for formal payment holidays were set to shut on 31 October, with banks agreeing to offer tailored support to borrowers who needed it thereafter.

This could include options such as extending mortgage terms, temporarily reducing monthly repayments or switching mortgage types, but unlike initial payment holidays, the support would be reflected on the borrower’s credit history.

With the announcement of a further national lockdown, however, these plans were been put on hold.

FCA proposals on loan payment holidays

On 17 November, the Financial Conduct Authority (FCA) published new guidance for mortgage borrowers experiencing payment difficulties because of COVID-19.

The rules mean homeowners are entitled to payment holidays of up to six months as a whole.

• If you’ve not taken out a payment holiday since the start of pandemic, you are able to apply for deferrals of up to six months.
• If you currently have a deferral in position, you are able to extend this to take you as much as the six-month limit.
• If you’ve resumed repayments following a deferral, you can make an application for another one to consider you up to the six-month limit.
• If you’ve already had six months’ price of deferrals, you won’t be eligible for a further payment holiday. Your lender will instead offer you support tailored for your circumstances.

Borrowers have until 31 March 2021 to request a payment holiday. After this date, you’ll have the ability to extend deferrals as much as 31 July, subject to not exceeding the six-month limit. Deferrals will not be reported as missed payments on credit files.

The FCA has additionally confirmed the ban on repossessions is going to be extended to 31 January.

• Are you considering asking for a payment holiday, and have you applied for one out of the past? If you’d prefer to tell us regarding your experience, please email money-letters@which.co.uk

What is a loan payment holiday?

A mortgage payment holiday is when your repayments are paused for any few months.

During this time around, interest will continue to accrue, therefore it may ultimately cost you more over time.

With this in your mind, the FCA had advised that borrowers who are able to afford their mortgage repayments continue to make them as normal.

The FCA has confirmed that lenders shouldn’t charge any extra fees to set up a payment holiday.

Do I qualify for a payment holiday?

Payment holidays are available to UK everyone who is current on their own mortgage repayments.

They’re also open to buy-to-let landlords whose tenants happen to be financially affected by coronavirus. Landlords taking payment holiday season is likely to pass on this relief for their tenants.

Homeowners who are in arrears on their own mortgage should contact their lender, that will review any changes to their circumstances and discuss their options.

If you’re eligible for a payment holiday (begin to see the rules above), you’ll need to apply by 31 March.

Do I need to have experienced coronavirus to apply?

You don’t need to have contracted or tested positive for coronavirus to apply for a payment holiday.

Payment holiday season is open to any homeowners who are worried about their ability to satisfy their mortgage repayments, for example, as a result of lack of work or any other changes in their circumstances.

Will I have to undergo affordability tests?

No. Your lender will not need you to provide any documentation or undergo any affordability tests.

Instead, homeowners will have to self-certify that their income has been directly or indirectly impacted by the coronavirus.

If you’re a landlord, you’ll need to self-certify that the tenant’s income continues to be impacted by the outbreak.

What happens following the payment holiday?

Your lender will contact you at the end of the payment holiday to evaluate your circumstances and agree with a manageable way to make up the deferred payments.

Lenders should provide a variety of options, which might include extending your mortgage term or altering your monthly payments if it’s affordable to do so.

The FCA’s guidance states that firms shouldn’t take a ‘one size fits all’ approach, but instead come up with tailored plans to help borrowers recover with their payments.

Alternatives to mortgage payment holidays

Payment holidays are only one option that lenders can provide, so it’s best to call your bank or building society and discuss what measures can be found.

You don’t need to undergo an affordability assessment, but when you’re willing to achieve this your bank could offer you more tailored support.

For example, a few of the following options might be available:

• To move your mortgage to interest-only payments for any period
• To defer your charges for a period
• To extend your mortgage term (reducing your monthly obligations)
• To add the deferred payments to the overall amount your debt and spread this over the remaining mortgage term

Will deferring my payments affect my credit score?

A formal payment holiday won’t see like a missed payment in your credit file, so it shouldn’t affect your credit rating.

The FCA has confirmed, however, that customers who seek further support from lenders after their payment holidays end must have this reflected on their own credit files. It says doing so can help ensure lenders have an accurate picture of customers’ financial circumstances.

What if my credit report is wrongly affected?

If your lender wrongly submits your payment holiday like a default in your credit report, it’s essential that you flag this as soon as possible. If you tell your lender from the error also it accepts responsibility, it will be able to fix the error itself.

You can also raise a dispute with the credit referencing agency. All the major agencies offer online services where one can raise and submit disputes. Once you’ve submitted the issue, the agency asks the lending company to check its records and amend any errors.

Will a payment holiday affect future credit applications?

The affordability checks completed whenever you apply for a mortgage change from bank to bank, and banks assessing your bank account information and expenditure could see that you took out a payment holiday and factor this to their lending decisions.

It remains to be seen how much of an issue this will be for applicants later on, but it does mean that you ought to carefully consider whether you will need to have a payment holiday before applying.

How will i get a payment holiday?

To get a payment holiday, you’ll have to contact your bank directly.

Most banks provide online services where you can quickly apply for a payment holiday, but consider phoning your lender to talk through your options if you’re unsure it’s the best decision for you personally.

Don’t cancel your direct debit

It’s very important that you simply contact your lender to request a payment holiday, and don’t simply cancel your monthly direct debit.

If you cancel the direct debit, this is considered a missed payment as opposed to a payment holiday.

The missed payment would then be registered on your credit report, potentially affecting your likelihood of remortgaging or borrowing further later on.

Will I have the ability to remortgage throughout a payment holiday?

Guidance from UK Finance states that homeowners remortgaging with the same lender (referred to as a product transfer) can do so even if they have a payment holiday in place.

Existing customers who have been furloughed may also be entitled to product transfers.

Case study: setting up a loan payment holiday

Freelance writer Andrew Dickens (pictured) set up a loan payment holiday with Coventry Building Society.

He told Which?: ‘I requested the payment holiday for the sake of my mental health. In the space of five days, I’ve had a large number of pounds’ worth of work cancelled like a direct consequence of the virus, quite a blow.

‘I've savings but I don’t wish to eat into them any faster than I need to, and so i requested the payment holiday as a pre-emptive strike. The vacation allows me to spread out the cost and feel easier within the next couple of months.’

Andrew told us that his future home loan repayments will become around lb10 a month more expensive, but he feels the move is worthwhile.

He says: ‘It’s something of the gamble because the mortgage in general will become a little bit more costly and I may not need the holiday in the end, but it’s one worth taking in my sanity.’

No effect on credit scores

In line with the guidance from UK Finance at that time, Coventry didn’t undertake a full assessment of Andrew’s financial situation. Instead, he was simply asked why he desired to go ahead and take payment holiday.

He told us: ‘My first question was whether my near-perfect credit score could be affected. The representative told me there would be no mark on my small report and no adverse affects. It sounded like he was reading out a prepared line’.

A five-star service

Unlike some homeowners, Andrew found that getting in contact with his lender was a quick and pain-free process.

He got right through to Coventry within a few moments after a little security checks and was passed on to a group set up to deal specifically with these requests.

‘Assuming everything I was told works out this was a five-star service’, he states.

Coronavirus advice that?

Experts from across Which? have been compiling the recommendation you need to stay safe, and also to make sure you're not excluded from pocket.

• Coronavirus: what it really means for house prices
• Banks allowing early access to fixed-rate savings
• Coronavirus charge card and loan payment holidays extended
• Coronavirus: your rights if an event is delayed or cancelled
• Coronavirus: how to protect your pensions and investments
• Coronavirus: what it means for your travel cover
• Coronavirus scams: how to spot them and prevent them
• Coronavirus: your travel and consumer rights Q&A

You will keep current on our latest coverage over on our coronavirus advice hub.

This story was originally published in March and it has been updated since. The final update was on 17 November 2021 with information on the FCA’s guidance on extending payment holidays until 31 March 2021.