Coronavirus payment holidays help and advice

What is a mortgage payment holiday?

A payment holiday means that your lender has agreed a temporary break in having to make mortgage payments for an agreed period of time. You can also get payment breaks on unsecured debts such as credit cards and personal loans. These are to help people who could be struggling financially for several reasons.

These breaks have always been in existence, if not always readily available. However, since the Coronavirus pandemic shook the global economy, banks agreed with the Chancellor that they would offer ‘forbearance’ (tolerance and help) on mortgages and other loans secured on your mortgage for an initial period of 3 months. This was also extended to unsecured loans and credit cards, to help anyone whose income was affected by Coronavirus.

I’ve received a letter from my bank about my payment holiday, what should I do now?

If you’ve already taken a payment holiday, then your bank will write to you to let you know your holiday is coming to an end and let you know what your new payments will be. This new amount will take into account the arrears and interest that have built up over the payment break period.

If you’re unable to afford these payments, your bank or lender will clearly set out what options are available to you. You will need to get in touch with them to allow plenty of time before your next payment is due in order to ensure you don’t miss a payment without their agreement, as this will be recorded as a default on your credit report.

My payment holiday is coming to an end; what are my options?

Mortgage payment breaks:

Lenders have been told that they should offer a payment holiday extension and agree a full or partial payment break if the customer is unable to resume with their regular repayments. If you can make some payments towards your mortgage, but can’t pay the whole amount, you’ll be able to come to an agreement with your lender to do so. This is a better option than a full payment holiday as less interest will accrue, meaning future repayments would be lower than if you’d taken a full payment holiday.

Mortgage holders who haven’t yet applied for a payment holiday can do so until 31 October 2020. This allows people who are currently making payments but are concerned about the future have more time to make the decision rather than rush to apply.

If lenders don’t feel it is in your best financial interests to extend your mortgage holiday, they can also discuss alternative options with you if they feel they would be better for your situation.

These could include:

Choosing a new deal – you may be able to choose a different mortgage product with the same lender that could save you money on your monthly payments.

Change your term – it might be possible to lower your monthly payments by extending your mortgage term. Extending your term will mean your loan will be paid off over a longer period, so the amount of interest you will pay over the lifetime of the mortgage will increase – but could make things more affordable for you.

Make an overpayment – if you’re in a position to repay some or all of the payments that you haven’t made during your mortgage payment holiday, then making an overpayment will reduce your outstanding mortgage balance and you’ll pay less interest over the lifetime of your mortgage.

Seek debt advice – if you feel that you have wider financial concerns and are struggling to make payments on other bills, your lender may refer you for some independent debt advice. At PayPlan, we can look at all of your debts and work out the best solution for your current circumstances.

Personal loan and credit card payment breaks:

Once you’ve come to the end of your initial payment break, your lender will encourage you to start making at least the minimum monthly payment again. If you are in a position to do so, it is better to pay more than the minimum to reduce the amount of interest you’ll pay on the balance. If you don’t feel you can afford to resume your credit card or loan payments, then it is likely you will be encouraged to seek some independent debt advice before your lender will consider extending your payment holiday.

How does a payment holiday affect my credit score?

The number one thing that you need to before taking out a payment holiday is make sure you have explored all available options. Depending on your situation, you may find that you need to get debt advice if you can’t afford to make payments, rather taking a payment holiday which could prolong the problem.

The FCA says that lenders should ensure the temporary measures don’t impact credit reports and scores, and you won’t be ‘defaulting’ on a payment if you have the lender’s agreement. If you are in debt and arrears, then it’s likely your credit score has already been affected. In this case, you need to get free debt advice as the payment holiday could only mask your problem over the pandemic.

The UK’s three main Credit Reference Agencies (CRAs) have pledged to protect credit scores during the COVID-19 pandemic. Experian, Equifax and TransUnion have agreed to an ‘emergency payment freeze’, with new guidance which ensures an individual’s credit score is not affected over the duration of the agreed payment holiday.

However, it’s worth noting that even though credit scores will not be directly impacted, lenders may be able to determine whether someone has taken a payment holiday and use that information when assessing a credit application. Therefore, any payment breaks you take now may well impact credit applications in the future.

I’ve taken payment holidays but still can’t afford my bills, what should I do?

If you have fallen into arrears, or have multiple debts, or you couldn’t afford to pay your bills prior to Coronavirus, then you should seek debt advice.

The second step to take is to make sure you’re getting all the income and support that you’re entitled to. Our free online benefits calculator has been updated in line with the latest changes that have taken place in response to the Coronavirus outbreak – use this to check you’re claiming everything you can. Visit: https://payplan.entitledto.co.uk/home/start

If you are on Furlough, then you may want to think about checking your employment contract, or directly with your employer, to find out if you can get a part time job to top up the money that you have coming in.

Should I take a payment holiday if I don’t really need one?

You should only take a payment holiday if you need it as it will impact the amount that you pay back in the future. If you can afford to, then make your payments. Plan for the uncertain future.

We have heard some cases of people taking out payment holidays in order to pay off other debts, but you need to be mindful that by doing this you are turning unsecured into secured debt. You will be adding on interest and tagging further payments onto the end of your term – which can be risky for retirement.

Should I take a payment holiday or borrow money instead?

If you need to borrow money to pay your bills or debts, we’d advise you get in touch with your current lenders to see how they can best support you through the Coronavirus pandemic. Have a look at our section on the Coronavirus Hub on what creditors are doing to help.

You should never borrow to survive. If you are in financial difficulty and were struggling before the pandemic, you need debt advice.

A few things you should make sure first:

• Check our benefits tool, which has been updated in line with current Coronavirus information
• Ask for all payment breaks – making sure you’re aware of how these will affect future payments

If you need to borrow, then look at all the options available to you. We have gone through the details in our guide on borrowing money during the Coronavirus outbreak.

Throughout all of this, you need to make sure that you avoid loan sharks and fraudsters – who are preying on the vulnerable and will target those who struggle to get credit through a regulated bank, because of a bad credit rating for example.

If you are Self-Employed:

Check if you are eligible for Self-Employed Income Support Scheme and have a look at other available financial support while waiting for payment such as Universal Credit, Employment & Support Allowance and Job Seeker’s Allowance.

Ask yourself if you can apply for a Bounce Back Loan? If you are self-employed with a small or medium-sized business affected by Coronavirus, this scheme will allow you to apply for a loan of up to £50,000.