Mortgage Payment Holidays - are they the right decision for you? - Evolution Financial Planning

In these ever-changing times and in the wake of the ongoing Covid-19 global pandemic, much has been publicised of the Government’s decision to ensure many banks and lenders offer mortgage payment holidays to anyone struggling with their finances as a result of the crisis.

But what exactly is a mortgage payment holiday, and is it the right decision for you?

According to the HMRC website, a mortgage repayment holiday is worth considering “if you are experiencing financial difficulties meeting your mortgage repayments because of COVID-19.. This includes if you are a landlord whose tenants are experiencing financial difficulties because of COVID-19.”

Many lenders, including Santander, NatWest, HSBC and Nationwide have rushed through guidance and mechanisms for their customers who want to take advantage of the holiday offer. They have also been quick to reassure people that their credit rating will not be affected, as long as they take advantage of the official application processes.

All sounds perfect, doesn’t it? A three month mortgage holiday with no repercussions on your credit rating? I asked the members of my Facebook Group, The Money Mastery Collective, what their feelings on mortgage payment holidays were, and there was a mixed response:

“We had no choice unfortunately. Our income has gone down to a third of what it was and I don’t qualify for any government help.”

“We don’t qualify for help but have decided to not take up the offer until we need to. There must be so many people taking it up I do wonder where the money is coming from. I also wonder how many people are taking up the offer due to caution rather than actual need.”

“In my opinion, it’s good if you’re desperate, but I’m not taking one as I don’t want the extra interest.”

“We’ve taken a 3 month mortgage holiday due to the situation – it’s saved us. I’ve had to close my business while all this happens and although I’m not the main bread winner it would have made life pretty hard. I’ve been assured it won’t affect our credit rating so I have no issues about doing it. That said we’ve never taken a payment holiday before and I would never normally consider one – but these are exceptional times”.

“We only have 6 years left on our mortgage and when we calculated the additional interests it was so little that it brushed off all our hesitation! We’re down to only one income and only a fraction of it with no extra help… so yes we did it so we could pay all the other bills + food…”

So what are the pros and cons of taking a mortgage payment holiday during these unprecedented times? Well, positives to taking a mortgage payment holiday include that if you really are struggling with paying your mortgage because you have perhaps had to close your business, or because you’ve been furloughed or because you are unwell, it offers an option to manage your finances a little better for the next three months.

There’s also the positive that all lenders are continuing to assure their customers that your credit rating will not be affected, as long as you apply via their advertised mechanisms. It’s important to remember you cannot just stop or cancel the mortgage direct debit without letting your lender know, so it’s vital to make sure you’ve fulfilled their application requirements at the start.

But what are the cons, if any? The increase of interest seems to be an issue for some people – after all, the interest not paid on your mortgage during these three months will have to be paid back at some point. It’s important to check  interest rate on your current deal and work out with your lender what this actually means in practice, and how much you will need to perhaps increase your monthly payments by as a result afterwards.

Either way, my advice is to properly research your decision – dig out your mortgage documents, read them thoroughly, check out your lender’s website for their specific advice and really look at your projected income over the next few months; think it through before you do come to a final decision of whether to apply or not.

If all this talk of finances has got you feeling like you are maybe missing something when it comes to managing your money and would like some tips and guidance, then come on over to my Facebook Group, The Money Mastery Collective: https://www.facebook.com/groups/womensmoneymastery

Evolution Financial Planning Ltd is an Appointed Representative of TenetConnect Services Ltd FCA Firm Reference Number (FRN): 150643 (previously The M&E Network Ltd). Tenet Group Ltd 5 Lister Hill, Horsforth, Leeds, LS18 5AZ, West Yorkshire.