Many of us are struggling to pay the bills this year. So, we find out if payment holidays are still available and if they are a good idea.
Disclaimer: This information is correct at the time of writing but may be subject to change.
Can I apply for a mortgage payment holiday?
If you’re in financial difficulty due to coronavirus, contact your mortgage provider. In some cases, they may be able to give you a payment holiday, though this is usually a last resort.
According to the FCA, if you are experiencing financial difficulty and haven’t already deferred any payments, then you may be able to get a six-month payment holiday - if your lender agrees. Or you could top up an existing (or previous) payment holiday to six months in total. However, there’s no guarantee, as it depends on your circumstances.
If you’ve had six months’ worth of payment deferrals already, then you won’t be eligible for any more. However, your lender may be able to offer you help, such as a reduced payment plan, for example. Bear in mind, this may be recorded on your credit file for lenders to see.
The deadline for requesting an initial or further payment holiday is 31 March 2021. However, if you think you’ll need the full six months, it’s best to apply before your February 2021 payment is due. This is because the current scheme is due to expire on 31 July 2021.
Is a mortgage payment holiday a good idea?
The Financial Conduct Authority (FCA) advises customers to continue paying their mortgage payments if it’s affordable to do so. They say you should only request a payment holiday if it’s ‘absolutely necessary’.
Remember, interest will continue to accrue in the background. This means you could end up paying more in the long-term.
Never stop or reduce your repayments without speaking to your mortgage provider. Otherwise, you could be charged late fees. Plus missed payments will show on your credit report and this can cause your credit score to drop. It may also put off future potential lenders, as you may appear too risky to lend to.
Normally, missed mortgage repayments can put your property at risk of repossession. However, due to the coronavirus pandemic, the FCA has confirmed that ‘no one should have their home repossessed without their agreement until after 31 January 2021'.
Can I request a payment holiday on unsecured debts?
Yes, you can request a payment holiday on debts such as credit cards, personal loans and overdrafts. Again, you should try to keep up with your repayments if you can afford to do so. Only request a payment holiday as a last resort.
If you haven’t already taken a payment holiday, then you should be able to get a six-month break (subject to the lender’s criteria). Or you can top up your current, or previous, payment holiday to six months in total.
If you’ve had six months’ worth of payment deferrals already, then you won’t qualify for more. Those who are in arrears or are currently getting tailored support, won’t be eligible either. However, your lender may still be able to offer you help. This may include deferring payments and reducing or waiving interest.
When it comes to high-cost, short-term borrowing (like payday loans), payment holidays are restricted to one month.
The deadline for requesting an initial or further payment deferral is 31 March 2021. The existing scheme will then end on 31 July 2021. If you want to get a full six months’ worth of payment holiday in before 31 July 2021, you’ll need to contact your lender before your February payment is due.
Will a payment holiday affect my credit score?
Deferred payments won’t show as missed payments on your credit report. However, lenders will still be able to tell that you’ve taken a payment holiday. This may affect your ability to get credit in the future - depending on the lender’s criteria and your circumstances at the time.
Any tailored support (like reduced payment plans) may also show on your report. Always check with your lender before entering such a plan.
Either way, an arranged payment holiday or reduced payment plan is a better alternative on your report than repeated missed payments. If you are unable to pay your mortgage or debt repayments, then it’s best to speak to your lender about these options.
Read on to find out if you can get debt written off.
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