The cost of mortgage holidays
Almost one in five UK mortgage holders have now been granted a payment holiday, it was estimated this week – but people’s experiences of the process have been very different. Some struggled to get a holiday while others say it was almost too easy. And while for some it will add just a few pounds to their monthly mortgage bill, others say their outlay will rise by a lot more.
New information uncovered by MoneySavingExpert.com indicates taking a payment holiday on your mortgage or other forms of credit could have an impact on future credit applications despite promises that credit scores won't be affected. When you have an agreed mortgage holiday in place, your credit file isn't affected as you are making the agreed payments (i.e. nothing), so there's no negative impact on your credit file. But many new lenders don't just rely on credit files and application forms to assess creditworthiness. They can use Open Banking and a range of other methods to assess people's finances, and these can indicate that no payments are temporarily being made – thus allowing lenders to see that person is on, or has taken, a payment holiday.
After a tip-off to MSE founder Martin Lewis that some lenders may be looking to use these methods to factor in mortgage and other payment holidays when assessing credit applications, he put this scenario to the financial regulator. Martin specifically asked whether a lender was allowed to factor in a payment holiday to an acceptance decision, if the lender had found out about it through their usual checks. The Financial Conduct Authority (FCA) confirmed that lenders could, saying: "In practice, lenders may use sources other than credit files, such as bank account information, to take account of other factors in their lending decisions. These factors could include changes to income and expenditure, and also any increased indebtedness as a result of interest accruing during the payment holiday."
These comments are offered only for general informational and educational purposes. They are not offered as and do not constitute financial advice. You should not act or rely on any information contained in this newsletter without first seeking advice from a professional. Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise.