What Is a Mortgage Payment Holiday?
A mortgage payment holiday is an agreed period during which you either stop making payments entirely or make reduced payments on your mortgage. It's typically arranged with your lender for a set period — usually one to three months, though some lenders allow up to six months.
During the payment holiday, interest continues to accrue on your outstanding balance. This means your total debt increases, and when normal payments resume, they may be higher than before to account for the additional interest and to ensure the mortgage is still paid off within the original term.
How to Qualify for a Payment Holiday
Lenders generally have specific criteria for granting payment holidays:
- You must be up to date with your payments (no arrears)
- You may need to have held the mortgage for a minimum period (often 12 months)
- Some lenders only offer payment holidays if you've previously made overpayments, effectively using your overpayment 'buffer' to fund the break
- You'll usually need to contact your lender and explain your circumstances
Payment holidays are not an automatic right — they're at the lender's discretion. However, under FCA guidelines, lenders are expected to treat customers fairly and consider requests sympathetically, particularly during periods of financial hardship.
The Cost of a Payment Holiday
A payment holiday isn't free. Interest continues to accumulate on your full balance during the break, and this additional interest is added to your outstanding mortgage. When you resume payments, you'll owe more than before.
For example, on a £200,000 mortgage at 5%, a three-month payment holiday would add roughly £2,500 in accrued interest to your balance. This extra amount then itself earns interest for the remaining term. Over the life of the mortgage, a three-month break could cost you several thousand pounds in total additional interest. The exact cost depends on your balance, rate, and remaining term.
Impact on Your Credit Score
If a payment holiday is formally agreed with your lender, it should not be recorded as missed payments on your credit file. During the Covid-19 pandemic, the FCA specifically directed that payment holidays should not negatively affect credit scores, and similar principles apply to formally agreed payment holidays in general.
However, if you simply stop paying without agreement from your lender, this will be recorded as missed payments, causing significant damage to your credit score. Always contact your lender before skipping a payment, no matter how difficult your situation feels.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.