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Will my mortgage payment holiday affect my credit rating?

  • Sharon McDougall -
  • 30th August 2020 -
  • 2 minutes to read

The devastating economic effects of COVID-19 have created severe financial problems on an individual and household level, and mortgage payment holidays have been crucial in preventing widespread home repossessions.  

But what happens when you take a mortgage payment holiday? Is your credit rating affected, and what does it mean for the future?

How do mortgage payment holidays work?

When you take a mortgage payment holiday it means you don’t make any repayments for three months – a timescale that has been extended for a further three months where necessary.

This doesn’t always mean it’s advisable to take or extend a payment break, however, as taking a mortgage payment holiday can negatively affect your financial situation further down the line.

The missed payments need to be made up at some point, and interest continues to accrue during the three or six-month period. Depending on your job and health situation at the time, this could increase the pressure on your finances and create further problems.

It’s important to find out from your lender how they would want you to make up the missed payments. You may have the option to extend your mortgage term, for example, or increase the repayment amount for several months after the payment break has ended.

Does a mortgage payment holiday affect your credit rating?

Taking a coronavirus related mortgage payment holiday doesn’t affect your credit rating. Under normal circumstances your lender would place a ‘default’ marker on your credit file to indicate that you’ve not met your repayments, but a mortgage payment break due to coronavirus is regarded as an ‘emergency payment freeze.’

There is the potential for lenders to find out about the payment break in the future through other means, however. For example, by checking through your bank statements or mortgage payments when making a lending decision.

This may or may not happen, but it is a possibility, so if you’re not sure about taking a payment break or extending an existing one, it’s advisable to seek professional advice beforehand.  

Taking a mortgage payment holiday during coronavirus

Many people have had no option but to take a payment break on their mortgage given the devastating impact of coronavirus on their finances. Sudden job losses and inability to work have created a situation that nobody has had to deal with before, and that required swift intervention by the government.

If you’re ‘on the borderline’ and believe you could cope without taking a payment break on your mortgage, it’s definitely worthwhile considering the long-term implications of repaying the missed amounts in the future.

Our expert team at Scotland Debt Solutions are here to offer dependable professional advice if you’re unsure about taking a mortgage payment holiday, and help you deal with the financial consequences of coronavirus. Please call us to arrange a free same-day consultation – we work from a network of offices around Scotland.

Sharon McDougall
Sharon McDougall
Manager
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