Payment holiday from mortgage proved no break

DEAR GARETH,

Right at the beginning of the first lockdown, I took a threemonth mortgage payment holiday. I took another threemonth holiday in October. I recently checked my credit report, and the second payment holiday has been recorded as missed payments. Is this correct? Gareth says…

The pandemic prompted the Government, regulators and banks to take unprecedented action to support people financially. One of the most important of these measures was the offer of a mortgage payment holiday, allowing borrowers to pause their repayments for a set period if they couldn’t afford to make them. This was in addition to a moratorium on house repossessions and a whole host of other support measures.

According to data from banking trade body UK Finance, banks agreed to 2.7m mortgage payment deferrals.

Homeowners have been allowed to take six months of payment holidays, which have been available to anyone concerned about their ability to pay. Banks have not carried out formal affordability checks, instead allowing homeowners to self-certify that their income has been affected by the pandemic.

The scheme ended on March 31. After this date, you’ll only be able to extend existing payment deferrals up to July 31. If you find that you’re struggling to make repayments in the future and haven’t already taken a mortgage payment holiday, banks are obliged to offer you ‘tailored support’, rather than automatically granting you a holiday.

As part of the package of measures on payment holidays, regulators demanded that borrowers’ credit histories weren’t affected by taking a mortgage payment holiday. Last year, the UK’s three main credit reference agencies, Experian, Equifax and TransUnion, agreed to an ‘emergency payment freeze’, ensuring that your credit score would not be affected.

So, what should your credit report look like? In essence, your payment status shouldn’t change – if you’re up to date with your repayments, your credit file should still appear that way. The months where you have taken a mortgage payment holiday should be reported as no payment being due that month.

This is important as missed payments have a negative impact on your credit score and would remain on your file for several years. This could impinge on your ability to borrow in the future or mean that you can only access more expensive products, as the most attractive credit products tend to only be available for those with excellent credit histories.

If there is a mistake and your lender incorrectly marks a payment deferral as a missed payment, it’s important to act quickly. The lender should be able to fix the mistake, but you can also raise the error with all the credit reference agencies, which allow you to raise disputes online. The credit reference agency can cross-check with the lender and amend your file. I would suggest attacking the issue from all sides.

While the mortgage payment scheme should never affect your credit score, a deferral can be used to inform a lender’s decision to lend you money in the future. The way that lenders carry out affordability checks vary, but essentially banks will assess your income and expenditure, using data from your credit file.

It may see that you took out a payment holiday and decide that you are the type of customer it doesn’t want to lend to in the future. We don’t know how much of an issue this is now, but it is worth understanding the full implications of taking advantage of the payment holiday scheme.