A guide to mortgage payment holidays
With some mortgages you can apply for a ‘mortgage payment holiday’ if money is tight. Find out how mortgage payment holidays work, the circumstances in which you may or may not be granted one and the pros and cons if you’re considering this option.
What is a mortgage payment holiday?
A mortgage payment holiday is an agreement you may be able to make with your lender that allows you temporarily to stop or reduce your monthly mortgage repayments.
For example, depending on your circumstances and previous payment history, it could be that you are able to take a break for a month, six months or even a year from paying your mortgage.
Not all mortgages offer the option of a mortgage payment holiday – it depends on the product’s terms and conditions.
Eligibility for a mortgage payment holiday
Whether you are eligible to take a payment holiday, for how long, and the conditions you must meet first will depend on your lender, the mortgage contract and your financial circumstances.
Often, in order to qualify for a payment holiday you will need to have previously overpaid on your mortgage. That means paying more than your agreed monthly payments until you have built up sufficient credit to take a break from payments.
However, your lender may also allow you to reduce or suspend mortgage payments if you are temporarily struggling to meet the monthly cost due to a change of circumstance, such as redundancy or going on maternity leave.
If you’re in mortgage arrears you won’t be eligible for a mortgage payment holiday. But don’t let that stop you contacting your lender. They will be keen to help you come to an arrangement.
See the later section on if you’re in arrears or struggling to pay your mortgage if this applies to you.
Pros of a mortgage holiday
The biggest positive about a payment holiday is that it relieves some pressure for a while. For a period of time you have one less thing to worry about when considering your outgoings.
If you are only facing a temporary drop in income, perhaps because you or your partner are having a baby and the mortgage holiday is to cover the maternity leave period, this can be a sensible move.
Cons of a mortgage holiday
While a mortgage holiday can be a useful short-term solution, it is not suitable if you can’t afford your mortgage payments because your household income has reduced permanently.
There are several important things to bear in mind.
- While you are not making mortgage payments, you are still racking up interest on your remaining mortgage balance.
- When the payment holiday comes to an end, your outstanding mortgage balance and mortgage payments will be higher than they were before the holiday.
- Even where your lender agrees this temporary solution, your credit file will be affected – this in turn could affect your ability to get credit in the future.
If you’re in arrears or struggling to pay your mortgage
If you think you want to take a payment holiday because you are struggling to meet your mortgage payments or in danger of falling into arrears, talk to your lender as soon as possible about an alternative solution. Lenders would much rather come to an agreement that will allow you to continue paying your mortgage at a reduced rate. Find out more in our guide below.
Alternatively, use our Budget planner to work out how much you have coming in and going out and see if there’s a way you can cut non-essential spending to help you meet your mortgage payments.
If you’re not in arrears but are finding it hard to meet your repayments it could be worth your while shopping around for a cheaper mortgage deal. Our guide Remortgaging to cut coststells you how to do this and what to look out for before you do.
If you’re still worried, you can get free debt advice from organisations like Citizens Advice or StepChange Debt Charity.
Remember, taking a mortgage holiday is only suitable as a temporary measure – and where you have sufficient savings or equity (capital) in your property to prevent you falling into unmanageable levels of debt.
How to apply for a mortgage holiday
Check with your lender and have a look at your mortgage terms and conditions to see if you are eligible for a mortgage holiday and if they are allowed under your mortgage agreement.
The criteria will vary from lender to lender.
- The length of your payment holiday depends on the lender. Some will allow you take up to 12 consecutive months off from paying the mortgage, while others will permit only up to six months over the life time of the mortgage.
- Typically, you will often have needed to have made payments on time for a minimum period before you are eligible to take a mortgage holiday.
- Your ability to take a mortgage holiday also depends on the size of your mortgage and the value of your home. Some lenders will only allow a mortgage holiday if the loan-to-value of your mortgage is lower than 80%.