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Mortgage Holidays: The Truth

1.8 million people across the United Kingdom are currently accessing mortgage payment holidays. For the self-employed, or those furloughed, or on sick pay, the mortgage breaks are a lifeline.

But many are now concerned about the risk to their credit score, should they apply for an extension of the scheme.

Beware

This week, Money Saving Expert, Martin Lewis, expressed his concern over the mortgage holiday scheme. He stated: “this is something to do only if you need it and you should not do it if you don’t need it.”

But why the sudden caution? 

Firstly, regulators have yet to finalise whether or not credit ratings would be immune from an extension to the scheme. The Chief Executive of the Nationwide Building Society, Joe Garner, said that a further extension of the mortgage holiday scheme may signal that a borrower was ‘struggling.’

As it stands, mortgage payment holidays will not appear on your credit file, but having one could have an impact on future borrowings, as mortgage companies can see whether or not you have accessed the scheme. Future lenders will also use your credit rating to confirm or decline new lending, such as a personal loan or a phone contract. 

Not Free Money 

Many are also cautious about how much interest they may need to pay, if they extend their mortgage holiday. 

When borrowing of any sort is formalised, interest will be applied to that debt. So by the end of the six-month mortgage respite, monthly charges could increase by anywhere between £50 -£100 per month. 

Nationwide have confirmed that interest will continue to build throughout the mortgage holiday, so when payments resume, ‘your balance will be higher than if you’d continued to pay off your mortgage.’

Extension Facts 

Mortgage holidays started in March, but under the new extension guidelines, users do not have to apply for an extension immediately. You can now apply for a mortgage holiday later in the year. With the current deadline to apply being October 31st. 

For many families, the winter months are an expensive time. Bills are often higher, and we have the added expense of the festive period to fund. So this date may come as good news to some.

Our Advice

  • If you are struggling financially, then use the mortgage holiday scheme. It is there for that very reason: to support people through a difficult and unprecedented time. Mortgage rates are still relatively low, so the additional interest costs should be bearable for most. 
  • However, if you can afford to pay your mortgage, do so. The chief executive of the Financial Conduct Authority, Christopher Woolard, agreed that it is in people’s “best interests” to start paying their mortgage as soon as possible. 
  • We advise that you speak to your lender about your situation. Any reputable company should provide an indication of what your future payments may look like, during the application process. 
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