Mortgage payment holidays were introduced at the start of the pandemic in March and were extended in early June.

Homeowners whose finances have been affected by COVID-19 can apply for a three-month mortgage payment holiday until 31 October, after which banks will be expected to offer tailored support to those still in financial difficulty.

Two million homeowners have taken out mortgage payment holidays since the start of the coronavirus outbreak, and new guidance from the Financial Conduct Authority (FCA) has offered an insight into what will happen once payment deferrals end. The regulator has confirmed that banks should offer a range of short and long-term support options to borrowers, although those who need extra support will have this reflected on their credit reports.

How do mortgage payment holidays work?

It is possible to apply for a mortgage payment holiday until 31 October 2020. Once a payment holiday has been granted, it will last for three months. Payments do not need to be made for that period, but interest will still accrue, meaning that borrowers will owe more once they do start to repay again. If they can make some payments towards their mortgage, this is better than a full payment holiday as less interest will accrue, meaning future repayments would be lower than if a full payment holiday were taken.

Currently, lenders are offering borrowers two ways to defer their mortgage payments.

Some borrowers will be able to extend their loan, effectively adding the extra three months onto the end of their term.

Others are being offered the opportunity to increase the mortgage size but keep the same term length.

This means that the mortgage will be paid off over the same period, but the borrower will be paying slightly more each month once payments start again.

Remember though, with both these options this means paying interest on the sum accrued, resulting in paying more interest overall.

The good news is that mortgage lenders will not be able to repossess borrower’s homes until after 31 October.

Mortgage payment holidays won’t be marked as missed payments on credit reports

The three major credit reference agencies – Experian, Equifax and TransUnion – have confirmed that customers’ credit scores will be protected when they have an agreed payment holiday in place. This special measure is called an ’emergency payment freeze’ and means a payment holiday will not be reported as a missed payment, protecting a borrower’s credit history.

However, this protection will end on 31 October (or after the second three-month payment holiday if that’s sooner) and if it’s not possible to resume full repayments once the protection ends, any new payment holidays or partial payments agreed with lenders will be reported on credit reports.

Tailored support available for mortgage holders after 31 October

The Financial Conduct Authority (FCA) has said mortgage lenders should consider a range of support options – including waiving or reducing payments – under new rules to help mortgage customers who are still struggling once coronavirus-related payment holidays end, or who first experience financial issues related to coronavirus after 31 October.

Most mortgage borrowers are expected to start repaying in full again once their payment holiday ends. But for those who cannot, these rules move lenders towards tailored support based on individual circumstances, rather than the ‘one-size-fits-all’ payment holidays offered since March.

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.