Published On: Mon, Jul 20th, 2020

Mortgage UK: How payment holidays could have an adverse effect on Britons | Personal Finance | Finance

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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.

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.

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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