Almost two in three adults fear mortgage holiday will hit credit score as deadline nears
Nearly two in three adults fear a mortgage holiday could impact their credit score, according to the latest research published as the deadline for a payment break approaches.
A survey of UK homeowners found that 73 per cent are worried that a mortgage holiday will impact their credit rating, with 10 per cent believing it will “definitely” have a negative affect on their score.
The deadline for applying for a pause in mortgage payments is 31 March.
Mortgage holidays – which allow property owners to pause repayments for a set amount of time -have helped to relieve one of the biggest fiscal outgoings for homeowners during the pandemic.
However, the mortgage break will have to be repaid eventually, either through an increase in monthly payments or the length of the loan’s term.
Experts at mortgage broker Haysto, which conducted the survey of 2,012 UK adults, said taking a mortgage holiday during the pandemic should not affect credit scores.
Paul Coss, co-founder of Haysto, recommended that homeowners double check with their lender to ensure credit scores will not take a hit.
Future lenders will be able to see gaps in the payment history, Coss said.
“This isn’t necessarily a bad thing, but it’s worth bearing in mind that it could affect a lender’s decision in the future.”
During the pandemic, a pause in mortgage payments may help some families keep on top of finances, but “you’ll have to pay it back eventually. To make up for the holiday, you’ll either increase your monthly payments, or your mortgage term will be extended,” Coss added.
The payment holiday can be for a maximum of six months and there is no fee required, but interest may stack up in the long term, the co-founder warned.
“It’s best to weigh up your options before going ahead with a holiday.”
Eligibility
Coss advised homeowners to first find out if they are eligible for a mortgage holiday before cancelling a direct debit, which would damage credit ratings.
“Most of the time, you won’t need to amend your direct debit, as your lender will simply pause taking the money while you’re on the mortgage payment holiday,” he explained.
For buy-to-let mortgage owners, the process may be harder as the holiday regulations are not covered by the FCA, however, landlords with tenants who have been financially affected by the pandemic may be covered.
“If you manage to get a buy-to-let mortgage holiday, you’ll be expected to give your tenants a rent holiday too,” Coss added.
The pause in payment is also available to those in mortgage arrears, however, there are slightly different rules for holiday requests that are not due to Covid-19 impacts.
“If you’re worried about repossession, you can’t currently be repossessed (without your permission) until 1st April 2021. If you’re in a Debt Management Plan (DMP), you should still be eligible for a mortgage holiday. But if you’re struggling, it really is best to speak to your lender who will be able to help you,” Coss said.