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How applying for a mortgage payment holiday now could impact future borrowing

by | May 6, 2020 | Brokers, Client Lenders, Clients

mortgage payment holidayWe contributed an article to the National Landlord Investment Show’s Survival Guide detailing the potential impact on future borrowing of mortgage payment holidays.

Taking a payment holiday now should not negatively impact your credit payment history on your credit file. However, lenders may take this into account when you approach them for future borrowing.

Read the full article and more information to help landlords during COVID-19 in the survival guide online issue or below.

 

How applying for a mortgage payment holiday now could impact future borrowing

By Julie Griggs, Director, CPC Finance

The UK government announced that mortgage payment holidays are an option for a period of up to three months. This applies both to homeowners with residential mortgages and landlords with buy-to-let (BTL) mortgages, but we are focusing on landlords’ BTL mortgages for this article.

What is a payment holiday?

A ‘payment holiday’ as defined by the FCA means “you agree with your lender that you will not have to make mortgage payments for a set amount of time. It is important to remember that you still owe the amounts that you do not pay as a result of the payment holiday. Interest will continue to be charged on the amount you owe.”

Think about the potential impact on future borrowing

Taking a payment holiday should not have a negative impact on your credit payment history on your credit file. However, lenders may take this into account when you approach them for future borrowing, and they may look on this negatively, if:

  • You request a payment holiday as soon as you can, rather than waiting to be sure you need it. They may see this as you trying to manipulate the system to save money or evidence of poor financial management.
  • If you have outstanding loan applications with a lender, but you request a payment holiday, they may pause these other applications and want to investigate your cashflow and revisit your business plan. After all, how can you justify taking on another loan when you cannot service the existing debt?
  • If you are applying for a BTL mortgage and you already have BTL mortgages with other lenders, then payment holidays will show up when the new lender requests information about the performance of your current portfolio. They may be wary of offering new borrowing if the landlord is already receiving a payment holiday from another lender.

Some landlords may be in genuine need of a payment holiday as their tenants have lost their jobs and can no longer pay rent, but this will not be the case for everyone. It might seem like there is no harm in applying for a payment holiday even if you do not really need one, but we encourage you to stop and consider the possible future implications.

If you do think you need a payment holiday, please speak with your lender and find out how they are approaching this option.

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