Secured Loan Repayment Holidays: Can You Pause Payments?

How Secured Loan Payment Holidays Work in 2026

There is no statutory right to a payment holiday on a secured loan in the UK. The COVID-era deferrals ended in July 2021 and there is no replacement scheme. Any payment holiday on a second charge mortgage is therefore a contractual arrangement between you and your lender, agreed on a case-by-case basis. Some lenders have standing policies allowing a payment holiday of one to three months after a minimum qualifying period; others offer nothing as standard and consider each request individually.

Typical mechanics are: you contact the lender and request the holiday; you explain the reason and provide supporting evidence if required; the lender considers the request against its internal policy and your account history; if approved, they confirm the terms in writing — usually the holiday duration, whether interest accrues, and how the missed payments will be recovered. Most commonly, missed payments are added to the outstanding balance and the term is extended, or the monthly payment increases after the holiday to repay within the original term.

Lenders that offer formal payment holiday products as part of their standard offering include a small number of specialist second charge lenders, though the feature has become less common since 2021. Most lenders now handle payment relief through the Consumer Duty forbearance route rather than a branded product. Ask your lender at the application stage whether a payment holiday is available and on what terms if flexibility is important to you.

Consumer Duty Forbearance Versus a Payment Holiday

The FCA Consumer Duty, which came into force for second charge mortgages in July 2023, significantly strengthens the obligations lenders owe to borrowers in financial difficulty. MCOB 13 sets out the existing forbearance rules and Consumer Duty adds a positive requirement to deliver good outcomes and act to avoid foreseeable harm. Together these rules mean a lender must consider reasonable forbearance for a customer in genuine difficulty, even if a formal payment holiday product is not offered.

The practical difference is that forbearance under MCOB 13 is designed to address actual or imminent payment difficulty, while a payment holiday may be requested for broader reasons (e.g., a planned career break, buying a second home, or cash flow management). Forbearance can take many forms: a temporary reduction in the monthly payment, interest-only periods, a capitalisation of arrears, a term extension to reduce monthly payments, or in extreme cases a partial write-down.

If you are in financial difficulty, asking for forbearance rather than a payment holiday is usually the right framing — the lender has stronger obligations to help, the terms are usually more favourable, and the credit file impact is governed by Information Commissioner’s Office (ICO) guidance on arrangements to pay. StepChange and Citizens Advice can help you prepare a request and negotiate with the lender if needed.

How Interest Works During a Payment Holiday

In almost all cases, interest continues to accrue on your outstanding balance during a payment holiday. This is because the debt has not been repaid — you are simply not making the scheduled monthly payments. The accrued interest is typically added to the outstanding balance at the end of the holiday period, a process known as interest roll-up or capitalisation. From that point, you pay interest on interest — the new balance is larger and the interest charge each month is correspondingly higher.

A worked example: suppose you have a £40,000 secured loan at 9.4% APR with 10 years remaining and a monthly payment of £513. If you take a six-month payment holiday, interest of approximately £1,880 accrues during the holiday and is added to the balance, bringing it to £41,880. To repay within the original term the monthly payment rises to approximately £540; to keep payments at the original level the term extends by about seven months and you pay an extra £3,200 in total interest.

Scenario	Balance after holiday	Total extra cost
No holiday (baseline)	£40,000	£0
3-month holiday, term extended	£40,940	£1,600 extra interest
6-month holiday, term extended	£41,880	£3,200 extra interest

The lender’s written confirmation should set out the new balance, new monthly payment (if changed), and new term explicitly. If it does not, request this in writing before accepting the arrangement.

Impact on Your Credit File

The credit file impact of a secured loan payment holiday depends on how the lender reports the arrangement to the Credit Reference Agencies (CRAs). Under ICO guidance and the Principles of Reciprocity governing credit reporting, a properly structured payment holiday agreed in advance should not be recorded as a default or a missed payment. However, the lender may still flag the account as being subject to an arrangement — a neutral marker that is visible to other lenders but is not itself adverse.

In contrast, if you simply stop paying without agreement, the lender will report missed payments and the account will start moving towards default. Once a default is registered (typically after three to six missed payments), it remains on your credit file for six years and severely damages your ability to access credit. The difference between an agreed payment holiday and an unauthorised pause is therefore enormous for your credit profile.

MCOB forbearance arrangements are treated similarly — the ICO has confirmed that where a forbearance arrangement is in place and being complied with, the account should not be reported as in arrears. However, “arrangement to pay” (AP) markers may still be added, and some future lenders treat these as a soft negative. If you are concerned about credit file impact, ask the lender exactly what marker will be applied and for how long.

When Lenders Will and Will Not Agree

Lenders are most likely to agree to a payment holiday when: you have a clean payment history over the preceding 12 months; you can demonstrate a specific, time-limited reason for the request (maternity leave, illness recovery, short-term loss of income); the outstanding balance and LTV are comfortable; and you propose a reasonable duration (one to three months rather than twelve). The presence of a workable forward plan is essential — lenders want to see that the holiday is a bridge to continued payment, not a delay to an unavoidable default.

Lenders are unlikely to agree when: you are already in arrears; the request is driven by a long-term income reduction with no clear route back to affordability; you have taken multiple previous holidays; the LTV has risen materially since completion; or the reason given does not match the supporting evidence provided. In these situations, a formal forbearance arrangement under MCOB 13 is usually a better request to make — the lender’s obligations are stronger and the range of available options is wider.

If your request is refused, you can escalate a complaint through the lender’s internal process and, ultimately, to the Financial Ombudsman Service. The FOS will consider whether the lender has complied with Consumer Duty and MCOB 13 — a bare refusal without genuine consideration of the borrower’s circumstances is likely to be found non-compliant.

Alternatives to a Payment Holiday

Before requesting a payment holiday, consider whether an alternative structure might better match your needs. A term extension permanently lowers your monthly payment by spreading the remaining balance over a longer period — useful if your income has reduced permanently rather than temporarily. A temporary interest-only arrangement reduces the monthly cost to the interest element only for a set period, preserving the capital balance. A switch to a lower-rate product through a new application or remortgage to a different lender may be cheaper overall.

If the underlying problem is affordability across multiple debts, a Debt Management Plan (DMP) coordinated through StepChange or another free charity can restructure payments to all creditors at once. A DMP is usually a better answer than a unilateral payment holiday on one debt because it addresses the full financial picture. For more serious difficulty, formal insolvency options (IVA, bankruptcy) exist but have significant consequences for a secured loan — these are decisions to make only with specialist advice.

Finally, if your payment difficulty is a short-term cash flow issue rather than a structural one, borrowing from family, drawing on savings, or approaching an employer for a salary advance may be preferable to interfering with your secured loan. The cost of an interest-accruing payment holiday (hundreds of pounds on a typical loan) can easily exceed the cost of a short-term alternative.

How to Request a Payment Holiday or Forbearance

Contact your lender in writing as early as possible, ideally before you miss any payments. Explain your circumstances clearly, specify the duration of help you need, set out the evidence (payslips, medical notes, employer correspondence) and propose the recovery plan you will follow afterwards. Most specialist second charge lenders have dedicated customer support teams for borrowers in difficulty — ask to speak to them specifically rather than the general servicing team.

Keep a written record of every contact, including the date, the name of the person you spoke to, and the outcome. If the lender agrees a holiday or forbearance arrangement, request the confirmation in writing, checking: the duration; whether interest accrues; what the new balance and monthly payment will be after the holiday; how the missed payments will be recovered; what will appear on your credit file; and what happens if your circumstances change further.

If the request is declined, ask for the reasons in writing and request a Consumer Duty review. If the outcome is still unsatisfactory, complain formally using the lender’s final response procedure and, after eight weeks or a final response, refer to the Financial Ombudsman Service. Throughout the process, consider engaging StepChange Debt Charity (0800 138 1111) or Citizens Advice — they can negotiate directly with the lender and often secure better outcomes than borrowers acting alone.