As interest rates rise even further, is a mortgage payment holiday an option?

The Bank of England has raised interest rates for a 13th consecutive time, as it tries to tackle rising prices. Official data on Wednesday 21 June showed that inflation, the annual rate at which prices go up, was stuck at 8.7% in May.

The increase is from 4.5% to 5%, despite hopes that the increase would only be .25%.

Interest rates remain its primary tool to lower inflation, despite debate over its effectiveness. This change will mean further pain for some homeowners, but it could benefit savers.

Mortgage Payment Holidays.

If you are struggling to pay your mortgage and need time to sort out your finances, one option might be to have a mortgage payment holiday, but this option needs to be carefully considered.

What is a mortgage payment holiday?

A mortgage payment holiday is an agreement you might be able to make with your lender that allows you temporarily to stop or reduce your monthly mortgage repayments.

For example, depending on your circumstances and previous payment history, you might be able to take a break for up to six months.

Not all mortgages offer the option of a mortgage payment holiday – it depends on the product’s terms and conditions.

Qualifying for a mortgage payment holiday

Whether you qualify to take a payment holiday, for how long, and the conditions you must meet first will depend on:

• your lender
• the mortgage contract, and
• your financial circumstances.

Often, to qualify for a payment holiday, you’ll need to have previously overpaid your mortgage. That means paying more than your agreed monthly payments until you’ve built up enough credit to take a break from payments.

However, your lender might also allow you to reduce or suspend mortgage payments if you’re temporarily struggling to meet the monthly cost due to a change of circumstance, such as redundancy or going on maternity leave.

If you’re in mortgage arrears you won’t qualify for a mortgage payment holiday. But don’t let that stop you contacting your lender. They’ll be keen to help you come to an arrangement.

Pros of a mortgage holiday

• The biggest positive about a payment holiday is that it relieves some pressure for a while.
• For a time, you have one less thing to worry about when considering your outgoings.
• If you’re only facing a temporary drop in income, perhaps because you or your partner are having a baby and the mortgage holiday is to cover the maternity leave period, this can be a sensible move.

Cons of a mortgage holiday

• While a mortgage holiday can be a useful short-term solution, it’s not suitable if you can’t afford your mortgage payments because your household income has reduced permanently.

There are several important things to bear in mind:

• While you’re not making mortgage payments, you’re still racking up interest on your remaining mortgage balance.
• ·When the payment holiday ends, your outstanding mortgage balance and mortgage payments may be higher than they were before the holiday.
• Even if your lender agrees to this temporary solution, your credit file will be affected. This could affect your ability to get credit in the future.

How to apply for a mortgage holiday

Check with your lender and have a look at your mortgage terms and conditions to see if you’re able to take a mortgage holiday and if they are allowed under your mortgage agreement.

The criteria will vary from lender to lender:

• The length of your payment holiday is usually at the lender’s discretion and tailored to your personal circumstances.
• Typically, you will often have needed to have made payments on time for a minimum period before you qualify to take a mortgage holiday.
• Your ability to take a mortgage holiday also depends on the size of your mortgage and the value of your home. Some lenders will only allow a mortgage holiday if the loan-to-value of your mortgage is lower than 80%.

Regardless of your situation, one of our experts at Bristol, Weston, Bath and Exeter Mortgages Online take the stress and legwork out of researching all the numerous options available. As fully independent mortgage brokers, we will investigate the whole of the market on your behalf and discuss the best options to meet your specific goals and circumstances.

For further details about the mortgage and protection products we offer as a fully independent mortgage broker, or any other mortgage information, book your FREE CONSULTATION with one of our expert Mortgage Advisers.

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