If you feel like mortgage payments are overwhelming lately, you’re not alone — with unemployment rising, a cost of living crisis and inflation, thousands of UK homeowners are feeling the squeeze.
Fluctuating house prices, changing mortgage rates and leasehold reforms are all also contibuting to the stormy atmosphere for homeowners.
It’s against this unpredictable backdrop, with budgets being stretched left and right, that it becomes tempting, if not necessary, to start looking for some breathing space.
Welcome back mortgage holidays! You might remember them as a popular option during the pandemic when almost all of us needed some time to catch our breath financially, and now things are seeming tough again, the idea is catching the eye of many once more.
What is a mortgage holiday?
‘Mortgage holidays, also called a mortgage payment holiday, are a financial arrangement where your lender allows you to pause or reduce your monthly mortgage payments for a short, agreed period,’ explains property and mortgage expert Sam Fox, from UKMC.
Interest still accrues during this time, and you’ll need to repay what’s been deferred either through higher future payments or an extended term.
Not everyone is eligible, and some lenders will ask for written explanations as to why you need a break to ensure that you’ll be able to resume payments afterwards.
‘It can be really tempting to go down this road, especially if you have already paid off a large chunk of your mortgage,’ Sam adds.
‘Some lenders may only permit you to take a mortgage payment holiday if you’ve pre-built up overpayments to match what you would have paid.’
In short, it’s by no means a free pass, but it can be a useful tool if used correctly. Think of it as a timeout, not a time-off. You’ll still need to catch-up later, so planning ahead is key.
Still on the fence? Sam gave Metro a breakdown of the good, the not-so-good and what to be aware of before you decide.
Pros of taking a mortgage holiday
Short term financial breathing space
Mortgage holidays can be a particularly helpful way to ease pressure when your income takes a temporary hit during life transitions. Obstacles like job changes, temporary illness or maternity leave can cause a strain on your finances, a mortgage holiday can help you to stay on top of other expenses while you adjust, without missing payments.
Greater flexibility with finances
Taking a short break from your mortgage may give you the opportunity to redirect funds to where they’re needed most, whether its emergency costs, a car breaking down, everyday essentials or catching up on other financial commitments.
Ease of access
If you’ve managed to build some equity, or can show a short-term drop in income, lenders will typically offer a mortgage holiday much faster (and without affordability checks!).
Cons of taking a mortgage holiday
Interest still accrues
While you might be taking a break from payments, your lender isn’t. Your lender will still be adding interest behind the scenes, so the total amount you owe may grow and result in higher costs later on.
Higher repayments later
When your holiday comes to a close, your mortgage won’t pick up exactly where it left off. This usually means that your payments will go up, or you’ll be paying for a bit longer.
Credit file impact
Even though the break in payments is agreed with your lender, it may still be noted on your credit report, which might make future lenders a little more cautious.
Not suitable for long term issues
Mortgage holidays are designed to help with shorter-term set backs. If your income drop isn’t temporary, a holiday might just kick the problem down the road and leave you paying more in the long run.
How to get a mortgage holiday
There are many banks that offer mortgage holidays to eligible customers. It’s always a good idea to chat to a financial advisor to determine the best path to navigate your situation. Below is a list of popular banks, along with their policies on mortgage holidays and additional support for those having difficulty keeping up with payments.
All of the banks below also comply with the government Mortgage Charter, whereby customers can reduce their mortgage payments by either increasing the term of their mortgage, or switching their deal to interest only for six months. Clients are also able to lock in mortgage deals four months before their current fixed rate deal concludes, without affordability checks.
- Barclays
While Barclays doesn’t offer mortgage holidays with their loan agreements, they are able to support customers experiencing financial difficulty by allowing changes to payment dates. This bank allows you to shift payday to up to 25 days after the originally scheduled date, providing customers with some additional flexibility.
- Santander
Santander has a few options if you feel in a bind, offering ‘repayment holidays’, which work using the same rules as mortgage holidays. You can take a maximum of six repayment holidays during your loan, but interest will continue to accrue.
- Halifax
Halifax offers payment holiday’s to customers who are eligible, but have some requirements to consider before you can go ahead. Some of their pre-requisites are that you live in the property which your mortgage is associated with, that you haven’t taken a previous mortgage holiday for more than six months within the past three years (excluding Covid-19), and that its been over 12 months since you’ve taken out a mortgage with them. You can see full details of the terms and conditions regarding payment holidays on their website.
- Nationwide
Nationwide offers mortgage payment holidays to their clients in which they can stop or reduce their payments for between one and 12 months, giving customers some flexibility with repayments. Nationwide considers customers that have previously had a payment holiday, or have previously been converted to interest only ineligible for payment holidays, so ensure that you talk to an advisor before considering either a payment holiday or a mortgage charter as both can impact your credit file.
Mortgage holidays can be a real lifeline when used in the right circumstances, offering customers a little breathing space and short-term flexibility with payments while adjusting to a temporary income drop.
While they can be a lifejacket, they’re not without drawbacks, so make sure you reach out to a financial advisor before diving in, understand all the terms and enter payment holidays with a plan.
If you’re confident that the financial set-backs you’re facing are short-lived, for example a job transition, emergency expenses, maternity or paternity leave, mortgage holidays can act as a perfectly-timed pause button while you get back on your feet. Used wisely, payment holidays can be an ideal break to help you get back on track, without running you off course in the long run.
