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Will a mortgage payment holiday affect my credit score?

payment holiday

Although health is the number one priority during the coronavirus pandemic, its impact spreads much deeper, affecting people in so many different ways. Due to furlough and job losses, many people are experiencing financial difficulties. This could be exacerbated by a further lockdown.

We take a look at payment holidays and what financial organisations are doing to minimise the impact on their customers.

What is a payment holiday?

A payment holiday can be put in place to offer you a break in payments if you are struggling to afford them.  Before the pandemic, these were typically just offered by banks and other mortgage lenders. However in response to coronavirus, other finance companies such as car credit companies and even landlords have been offering payment holidays to their customers.

With the furlough scheme paying 80% of an employee’s salary, this has helped to keep some individuals financially stable. However for many it isn’t enough to cover all of their financial responsibilities.  There are also many businesses who have been unable to survive the pandemic, meaning multiple job losses.  A payment holiday offers a lifeline for those that are affected.   

If I take a payment holiday, will this affect my credit score?

Under normal circumstances, missed payments on a mortgage or other credit agreement would raise a red flag.  If not resolved quickly this would without a doubt affect your credit score and your eligibility for future credit.

The good news is that with credit reference agencies have agreed to protect the credit scores of consumers who have requested a payment holiday as a result of the coronavirus pandemic.

An “Emergency Payment Freeze” will ensure that an individual’s credit score is frozen for the duration of the agreed payment holiday.  This is great news for people who have worked extremely hard to build up a positive credit score. This will to enable them to apply for a mortgage or loan without having to start from scratch.

How do I arrange a payment holiday?

If the impact of coronavirus on your personal situation is causing you to struggle financially, the advice is to speak to your lender directly.

Whilst it is certainly easier to arrange a payment holiday during the pandemic, it’s not a given that you’ll be accepted.  If you’ve already got a poor credit score or have a history of late or missed payments, it may be hard to get a payment holiday, even under the current circumstances.   However, it is always worth asking, as they may have other options available to you.

If your lender is happy to agree a payment holiday, this is usually put in place for three months. 

It is important to remember that the repayments that aren’t made during the holiday period aren’t written off.  They are only deferred and will still have to be paid back.   This could mean increased repayment amounts or extra time on your mortgage. You should discuss with your lender what arrangements will be put in place at the end of the payment holiday.

What else can I do to ensure I don’t fall into financial difficulties?

We are not out of the woods yet – unfortunately we don’t know how long the pandemic will last for. We also don’t know what measures the government will continue with to help our financial situation.

If you can afford to do so, it’s certainly worth considering putting money aside to create an emergency budget.  This can help create a buffer if you find that your financial situation changes in the future.  Budgeting can help you to separate the ‘essentials’ from the ‘non-essentials’ and instead put those savings into your emergency fund.

Check your current outgoings –  can you pause any subscriptions, direct debits etc. that you currently aren’t making use of due to restrictions?

Speak directly to any of your lenders to discuss what measures they have in place to help their customers.

So Smart Money are mortgage experts – speak to an adviser today to find a mortgage that’s right for you. 

The above post does not constitute advice – financial, legal or otherwise. The information within this article is the author’s own opinion and do not necessarily reflect the views of SO Media or So Smart Money.


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