Does a mortgage payment holiday affect your credit rating?

A mortgage payment holiday is an agreement with your lender to pause part or all of your mortgage payments for a set period of time¹. It is not the same as missing a payment. A payment holiday is not marked as a missed payment on your credit file¹, but it will usually appear on your credit report and will likely affect your credit score, which can make it harder to take out credit in future².

The exception is the Covid-19 payment holidays. Those offered between 17 March 2020 and 31 July 2021 do not appear on your credit report and so do not affect your credit score². Lenders were told to ensure that no one's credit reports and scores were impacted as a result of getting payment help under the temporary measures³.

What a payment holiday does do is cost you more. Interest continues to be added to your mortgage during the break, so the amount you owe increases⁴. Your monthly payment afterwards rises to include the missed payments and the extra interest, or your term is extended¹. Nationwide states plainly that it will cost you more in the long term if you take a mortgage payment holiday⁵.

A payment holiday is not recorded as a missed payment

The distinction matters because a missed payment and a payment holiday leave very different marks. A payment holiday is not marked as a missed payment on your credit file¹. A missed payment is. There is a record of any payments you've missed on your file, and this will affect your credit rating and might make it more difficult to get a loan⁷.

A payment holiday is when part or all of your mortgage payments are put on hold for a set period of time¹. It is an arrangement you agree with your lender in advance, not a payment you fail to make. It is not automatic and not all lenders offer one, so you must contact them and apply to start a payment holiday⁸. Some lenders will offer payment holidays to give you some time to get back on track⁹.

The length is usually short. A payment holiday is when your creditor agrees to let you miss payments for a short time, usually one to six months⁶. Lenders commonly expect you to have paid your mortgage on time for a minimum period, often six months to one year, to be up to date or not to have missed more than one payment, and not to have taken a payment holiday too recently⁸.

There are three steps to apply for a mortgage payment holiday: speak to your lender, request a payment holiday, and your lender decides based on your situation¹. You can apply if you have kept up-to-date with your payments⁶. If you are on a debt management plan, you can still get a mortgage holiday unless you have mortgage arrears¹.

How a payment holiday shows on your credit file

A payment holiday will usually appear on your credit report and will likely affect your credit score, making it harder to take out credit in future². The gap in payments may be marked on your credit file, and this can make it harder to get credit in future⁶.

Lenders describe the same effect in their own terms. Lloyds Bank says that while it won't be marked as a missed payment, it will still appear on your credit history, and this could make it harder for you to get credit in future⁴. Yorkshire Building Society says payment holidays can affect your financial record and do not prevent the accumulation of interest¹¹.

Not every lender reports it the same way. Monmouthshire Building Society states that nothing negative will be placed on your credit file due to taking a payment holiday¹². That is one lender's stated approach, not a rule that applies across the market.

The Financial Ombudsman Service has looked at a case where a lender's internal policy said a repayment holiday would be recorded on the customer's credit file¹³. That case shows the practical point: what matters is what your own lender's terms say, and whether the holiday was agreed on the terms you were told.

Covid-19 payment holidays: treated differently on credit files

The payment holidays introduced during the pandemic were handled under temporary rules that set them apart from ordinary holidays. Payment holidays that were offered due to Covid-19, between 17 March 2020 and 31 July 2021, won't appear on your credit report, and so won't affect your credit score².

The regulator's instruction was explicit. Under the temporary measures, the FCA told lenders to ensure that no one's credit reports and scores were impacted as a result of getting payment help under the temporary measures³. This will change after 31 October³.

Lenders followed that approach. Kensington Mortgages says that if it agreed a payment holiday because of the Covid-19 pandemic before 31 July 2021, it will have continued to report the account in the same position as when the holiday was agreed¹⁴. AIB (NI) says its solutions were designed to ensure credit records would not be negatively impacted by a Covid-19 related mortgage payment holiday, subject to adhering to the conditions of the agreement¹⁵.

The official statistics support the picture. Covid-19 payment holidays were not classified as technical arrears, and so are not reflected in the arrears figures for UK regulated mortgages¹⁶. Even though these payment holidays came to an end in April 2021, this has not resulted in an increase in arrears so far¹⁶.

The scale was large. By October 2020 there were 2.5m mortgage holidays granted, including 162,000 on mortgages still in place and 64,000 on personal loans¹⁷. October 31 was the final deadline for new mortgage holiday applications¹⁸.

Do lenders see a past payment holiday when I apply for a new mortgage?

Usually yes, with the Covid-19 exception. Payment holidays can affect your mortgage application, as they normally appear on your credit report, and some lenders may look at a recent payment holiday application more carefully². Even if you've taken a coronavirus payment holiday, and these don't appear on your credit report, it could still affect your mortgage application².

That last point is worth holding on to. A holiday that leaves no mark on your credit report can still come up. A lender may ask about your payment history directly, or see it in your bank statements, even where the credit report is clean.

For ordinary holidays, the effect is on the record itself. The gap in payments may be marked on your credit file and can make it harder to get credit in future⁶. How much weight a lender gives it depends on the lender and on everything else in your application.

Some lenders set their own limits on repeat use. Halifax, for example, requires that you've not taken payment holidays for more than six months in total and not taken one in the past three years, excluding Covid-19 payment holidays taken between March 2020 and July 2021¹⁹.

If you have already used a long deferral, further holidays are harder. Homeowners who have already benefitted from a six-month payment deferral should speak to their lender to agree tailored support instead, as they are not able to take further payment holidays without an impact on their credit history³.

Interest keeps building during the break

A payment holiday pauses the payments, not the interest. Interest continues to be charged during payment holidays²⁰. Lloyds Bank puts it directly: we'll continue to add interest to your mortgage, so the amount you owe will increase⁴.

Interest keeps building during the break, so the amount owed rises even while payments are reduced or on hold. Nationwide says you will still have interest added to your mortgage throughout this period, even while your payments are reduced or on hold⁵. Halifax says it will continue charging interest on your mortgage balance during the payment holiday and add this to your balance²¹. Accord says interest continues to be charged on your mortgage during payment holidays²⁰. AIB (NI) says interest on your account will continue to accrue at the agreed rate during the Payment Holiday period¹⁵. Reliance Bank says it will add interest to your mortgage while you take a break²².

The effect on the balance is the part that catches people out. Taking a payment holiday will also increase the outstanding balance upon which future loan interest charges are calculated²³. Interest will continue to be charged during a payment holiday, and taking one will also increase the outstanding balance for future interest charges²⁴.

The same applies beyond mortgages. A credit card payment holiday allows interest to build up while the holiday is in place²⁵. A mortgage repayment holiday means interest will still be charged, so you will end up owing more as a result of taking one²⁶.

What your repayments look like after a payment holiday

When the break ends, the money has to be recovered. Your monthly payment rises to include the missed payments and extra interest⁶. Nationwide says your monthly payments will be recalculated at the end of the payment holiday and they may increase as a result⁵.

There are two broad ways the lender can do this. You still have to pay off the whole mortgage, either by increasing your monthly payments or by extending the mortgage term¹. AIB (NI) says that when the mortgage Payment Holiday ends, it will increase your monthly repayments over the remaining term of the mortgage to spread the cost over the original term¹⁵. Coventry Building Society says that if you take a payment holiday, the interest that hasn't been paid during this time will be added to the balance of your mortgage and repaid over the remaining term²⁷.

The size of the rise depends on how much of the term is left. In most cases, the longer left in the term, the lower the rise in payments⁶. Hinckley & Rugby Building Society states that after a payment holiday, your monthly payments will increase for the remaining term of the mortgage²⁸.

The same pattern applies to other borrowing. Your monthly payment to the loan rises to cover the missed payments and interest charged during the payment break⁶. Your minimum payments will rise if you take a payment holiday because of interest added during that time²⁵.

All repayments, and the interest accrued over the holiday period, will need to be paid by the end of the mortgage term²⁹. A payment holiday is a payment deferral, not a reduction in what you owe²⁹.

Where to get help if you cannot pay

A payment holiday is one option among several, and it is not always the right one. Lenders can also offer a temporary switch to interest-only payments or an extension of the mortgage term³⁰. A temporary mortgage payment holiday involves your repayments being paused for a set period of time, but interest will continue being added to your loan, so you'll likely pay more interest in the long run³¹.

If you are behind on your mortgage, the earlier you talk to your lender the more options tend to be open. There is a record of any payments you've missed on your file, and this will affect your credit rating and might make it more difficult to get a loan⁷. Lenders have rules to follow before they can take court action, and free, impartial help is available.

Free debt advice is available from StepChange and from Citizens Advice, and you can complain to the Financial Ombudsman Service if a lender treats you unfairly. If your lender has recorded a payment holiday on your credit file in a way you were not told about, that is the kind of case the ombudsman can look at¹³.