A guide to mortgage payment holidays
If you’re struggling to pay your mortgage, you might be able to apply for a mortgage payment holiday. Find out how mortgage payment holidays work, the circumstances in which you might be granted one and the pros and cons of getting one.
What’s in this guide
- What is a mortgage payment holiday?
- Qualifying for a mortgage payment holiday
- If you’re in arrears or struggling to pay your mortgage
- How to apply for a mortgage holiday
What is a mortgage payment holiday?
A mortgage payment holiday is an agreement you might be able to make with your lender that allows you temporarily to stop or reduce your monthly mortgage repayments.
For example, depending on your circumstances and previous payment history, you might be able to take a break for up to 12 months.
Not all mortgages offer the option of a mortgage payment holiday – it depends on the product’s terms and conditions.
Qualifying for a mortgage payment holiday
Whether you qualify to take a payment holiday, for how long, and the conditions you must meet first will depend on:
- your lender
- the mortgage contract, and
- your financial circumstances.
Often, to qualify for a payment holiday, you’ll need to have previously overpaid your mortgage.
That means paying more than your agreed monthly payments until you’ve built up enough credit to take a break from payments.
However, your lender might also allow you to reduce or suspend mortgage payments if you’re temporarily struggling to meet the monthly cost due to a change of circumstance, such as redundancy or going on maternity leave.
If you’re in mortgage arrears you won’t qualify for a mortgage payment holiday.
But don’t let that stop you contacting your lender. They’ll be keen to help you come to an arrangement.
Pros of a mortgage holiday
- The biggest positive about a payment holiday is that it relieves some pressure for a while.
- For a time, you have one less thing to worry about when considering your outgoings.
- If you’re only facing a temporary drop in income, perhaps because you or your partner are having a baby and the mortgage holiday is to cover the maternity leave period, this could be an option.
Cons of a mortgage holiday
- While a mortgage holiday can be a useful short-term solution, it’s not suitable if you can’t afford your mortgage payments because your household income has reduced permanently.
There are several important things to bear in mind:
- While you’re not making mortgage payments, you’re still racking up interest on your remaining mortgage balance.
- When the payment holiday ends, your outstanding mortgage balance and mortgage payments will be higher than they were before the holiday.
- Even if your lender agrees to this temporary solution, your credit file will be affected. This could affect your ability to get credit in future.
If you’re in arrears or struggling to pay your mortgage
Are you thinking about a payment holiday because you’re struggling to meet your mortgage payments or in danger of falling into arrears? Then it’s important to talk to your lender as soon as possible about an alternative solution.
Lenders would much rather come to an agreement that’ll allow you to continue paying your mortgage at a reduced rate.
If you’re not in arrears but are finding it hard to meet your repayments, it could be a good idea to shop around for a cheaper mortgage deal.
Find out what to look out for before you go ahead in our guide How does remortgaging work?
Debt advice
If you’re still worried, you can get free debt advice from organisations such as Citizens Advice or StepChange
Remember, taking a mortgage holiday is only suitable as a temporary measure – and only when you have enough equity (capital) in your property to prevent you falling into unmanageable levels of debt.
Read our guide on What to do if you’re struggling to remortgage
How to apply for a mortgage holiday
Check with your lender and have a look at your mortgage terms and conditions to see if you’re able to take a mortgage holiday and if they are allowed under your mortgage agreement.
The criteria will vary from lender to lender:
- The length of your payment holiday is usually at the lender’s discretion and tailored to your personal circumstances.
- Typically, you will often have needed to have made payments on time for a minimum period before you qualify to take a mortgage holiday.
- Your ability to take a mortgage holiday also depends on the size of your mortgage and the value of your home. Some lenders will only allow a mortgage holiday if the loan-to-value of your mortgage is lower than 80%.
This article is provided by the Money Advice Service.
