Mortgage holidays – what are they and what are the risks to my credit score?

Mortgage holidays – what are they and what are the risks to my credit score?

At the beginning of the pandemic as the country went into lockdown, many people found themselves unable to work. In some cases, it was not possible for some to work from home and they were subsequently put on furlough by their employers. Mortgage lenders announced a range of measures that could help those people who were now in receipt of less money than they were used to. These measures were put in place to help those people who found their income unexpectedly affected. People who suddenly found themselves facing a drop in their income were able to apply for a mortgage holiday to help them get past the uncertain times. 

What is a mortgage holiday?

A mortgage payment holiday allows the mortgage holder a degree of flexibility regarding the repayment of their mortgage in the event that their personal circumstances change. This offers a degree of flexibility when the mortgage holder can either chose to reduce the amount that they pay each month or stop their payment altogether for a period of three months. This is not something that is suitable for all mortgage holders. However, if a person suddenly finds themselves in a difficult financial situation it can free up much-needed money in order for them to pay for necessities. When the mortgage payments resume you will be exactly where you were when they stopped, still owing as much money on your mortgage. It is important to recognise that this is not free money. It is just a temporary freeze on paying off your mortgage. 

What about my credit score?

If you are considering a mortgage holiday because your finances have altered during this unprecedented time, then it is important to do it correctly if you do not want to have an impact on your credit score. You should discuss a payment holiday with your lender and get them to agree to it. DO NOT cancel your direct debit as this will be considered to be a missed payment and will not be looked upon favourably in the future by other lenders. Any missed payment that you have, no matter what the circumstances, could appear on your credit file and therefore may harm your credit score. 

Your individual credit score should not be affected if you follow the correct steps to take a mortgage holiday. However, if you have any concerns in this regard it is always a good idea to have a chat with your lender. 

It is important to remember that any future mortgage lender will be aware that you have taken a mortgage holiday, and this may have an impact on your credit score when it comes to future borrowing. 

If you are in financial difficulty because of coronavirus then your first step is to talk to your lender. Taking a payment holiday on your mortgage is a much better option than simply not making your mortgage payments. If you default on your payments the consequences in regard to your credit score will be much more detrimental to your future borrowing.

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