Will taking a mortgage holiday impact my credit score?

The financial impact of coronavirus is currently dramatic and growing. Many people are facing redundancy, or seeing their livelihood threatened. In response mortgage lenders and the Chancellor have agreed to allow mortgage holidays for those struggling financially due to coronavirus.

Usually if you decide to take a mortgage holiday this can have an impact on your credit score. And, if you’re selling your home or looking to move house soon, making sure you have a good credit score is important. In particular if you want to port your current mortgage, or apply for a new one on your next home.

Fortunately mortgage lenders have decided that if you need to take a mortgage holiday due to coronavirus your credit rating will not be affected.

There are however other financial consequences when taking a mortgage holiday. You should consider carefully before deciding whether it is the right option for you.

Read more about how to port your mortgage

What is a mortgage holiday?

A mortgage holiday is a pre-approved break from or reduction in mortgage payments. Most banks have agreed that in cases of financial hardship caused by coronavirus the length of mortgage holiday offered will be 3 months.

Will a mortgage holiday impact how much I have to pay back?

In most cases if you take a mortgage holiday the term of your mortgage will stay the same. This means that you will end up having to pay a larger monthly amount once your mortgage holiday has come to an end.

For example, if you currently have 20 years and 6 months left on your mortgage, and you take a 3 month break, you will have 20 years and 3 months left after the break. The amount you would have normally paid in the break period is divided by the number of remaining months, and added to your monthly payments.

Remember: You will still be charged interest on the remaining amount during the three month mortgage holiday. This will also be added to your remaining monthly payments.

Before you decide to apply for a mortgage holiday, you must make sure that you will be financially able to take on these higher payments.

Some banks, like HSBC and First Direct, may allow you to extend the term of your mortgage to compensate for the break. However, many others, including Natwest and RBS, will not.

If you’re unsure, the best thing to do is to discuss your options directly with your mortgage provider.

For more information about how mortgages work check out our handy guide

How do I apply for the mortgage holiday?

If you are suffering financial hardship, or expect to do so, because of Covid-19, contact your mortgage provider as soon as possible.

Because of the current circumstances many mortgage lenders are expediting the process by allowing those who have kept up to date with their repayments to ‘self-certify’ for a mortgage holiday. You will not need to provide proof of your financial situation. You also may not be assessed to see if you will be able to afford the larger repayments in the future.

If you prefer, you can still request a full assessment to see if you are financially suitable for a mortgage holiday.

If you have not kept up to date with your repayments, or you have already declared financial difficulties you're unlikely to be granted a mortgage holiday. You should however still get in touch with your provider as they are likely to have other options to support you.