Mortgage holidays could have an adverse effect on Britons – here’s how

Mortgage payment holidays were first offered by the government in March as a financial support measure. Under the policy, homeowners could choose to take a break from regular mortgage payments if they were financially affected by the COVID-19 crisis. The policy was to originally last for three months, but was extended by the government after increased demand.

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The announcement of payment holidays were widely welcomed at the time as a solution to helping the millions of people struggling financially.

But the major benefit was considered to be the fact that Britons would not have their credit score affected in the future.

However, sources have revealed banks have been turning away customers who had taken such payment holidays.

This could be particularly devastating for those who are looking to pay off loans in the future, particularly mortgages which often see Britons locked into agreements for decades.

Sources informed the Mail on Sunday that applicants were able to receive loan agreements on a provisional basis.

However, these people often failed credit checks later down the line.

It is said some banks are viewing those who have taken a payment holiday as risky in terms of lending money to.

In difficult financial circumstances all round, lenders appear to be reticent to provide loans to those who could potentially default on payments later down the line. 

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A source told the newspaper: “Banks are asking if people have taken a payment holiday or if they are on furlough.

“They will say, ‘Well, this person chose to take a payment holiday, did they do it because they needed one, or because they were lazy?’ 

“That person might be less of a good risk than someone who continued paying their mortgage regardless.”

In March, the business secretary Alok Sharma expressed payment freezes would not affect credit scores.

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He stated that the Financial Conduct Authority (FCA) had been in consistent contact with banks and lenders and said the “advice” that had gone out was that such a break should not affect a credit score. 

While mortgage holidays have been widely taken up, Britons have been warned about using them.

Mortgage holidays are not to be considered as “free money”, particularly as interest continues to build up on the loan throughout the break.

It is therefore likely that Britons will come back to higher payments after the break comes to a close. 

For this reason, people have been told only to take a payment holiday if they absolutely need to do so.

However, the general view remains that mortgage holidays can provide help during a time of need. 

The economic secretary to the Treasury, John Glen, has previously expressed he is in favour of mortgage holidays to provide assistance.

He said: “We’re doing everything we can to help people with their finances at this difficult time and that includes making sure people get the support they need with their mortgages.

“Everyone’s circumstances will be different, so when homeowners can pay some or all of their mortgage, they should work with their lender on a plan. 

“But if they are still struggling, I want them to know that help is there.”

The FCA has communicated that payment holidays should not affect the credit score of Britons in the long-term. 

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