Customers Struggle to Take Out Mortgage Due to Payment Holiday Backlash

A row of houses in a UK street

During the Coronavirus pandemic, UK consumers were given the opportunity to apply for a 3-month payment holiday if they were struggling financially and finding it difficult to keep up with bills and make loan repayments due to the crisis. 

Throughout the last 3 months, lenders have given more than 1 million credit card holidays to customers who were experiancing financial difficulty during the Coronavirus pandemic, in addition to over 700,000 loan payment deferrals.

As reported by a Treasury spokesperson, lenders were told by the FCA that “payment holidays should not have a long-term impact on people’s credit rating” and “where additional help is needed, lenders must be clear about the possible implications.” 

While many customers were reassured that a payment holiday wouldn’t affect their credit score, it seems that many haven’t been informed about the potential impact of future borrowing and, understandably, feel that they have been misled as they are finding it difficult to get a mortgage. 

But why are people being refused mortgages, despite being told that a payment holiday wouldn’t impact them? 

Banks are questioning customers who applied for payment holiday 

Mortgage brokers have expressed their concerns over the fact that many of their clients are being rejected for credit, as some lenders and banks are turning away customers who have taken a payment holiday during the Coronavirus pandemic - whether it was on a mortgage, credit card or car finance agreement. 

It also seems to have impacted those who are on furlough or have turned to government support schemes for financial help over the last few months. 

This issue has arisen just months after being told by the Government and credit reference agencies (CRAs) that there wouldn’t be an impact for borrowers who are making use of the financial help on offer, such as payment holidays. 

One of the main credit reference agencies, Experian, told customers that they would not be impacted by having a payment holiday. The chief data officer at Experian, Jonathan Westley, said that Experian, as well as other CRAs like TransUnion and Equifax, will “make sure that the agreement is reflected in your credit reports so that your score is not changed by any payment holiday you agree.” 

Despite what was said a few months ago, however, a lot of people are finding that they’re unable to take out a mortgage or remortgage, mainly because banks and lenders are concerned that they are not financially reliable. 

While a payment holiday should not have affected your credit score, it looks like some lenders are viewing the 3-month payment relief as 3 missed payments, rather than a payment holiday. 

Lenders are doing a wider assessment on borrowers

When borrowing money, one of the main things that a lender or bank will look at is your credit history and score, as this gives a good indication of your spending habits and how reliable you are at making repayments. 

Since the pandemic, however, it seems that some lenders are doing a broader assessment on people who want to borrow and take out a mortgage to find out why they took the payment holiday in the first place. 

Lenders are asking more questions during the mortgage or loan application, such as: 

  • Why did you take a payment holiday? 
  • Were you furloughed? 
  • Do you have evidence of how your income was affected by Covid-19? 
  • What other financial resources did you have available to you at the time? 

Buy-to-let and specialist providers are also asking a lot more questions, but the main reason for a more in-depth assessment is to try and determine if the borrower really needed to take a payment holiday, and, in effect, some lenders will feel that this person poses a higher risk than someone who continued to make their mortgage repayments despite the crisis. 

What if I get rejected for a mortgage because I took a payment holiday? 

Since March 2020, companies and lenders have been adapting the terms and conditions of their policies and application process, so your ability to get a mortgage will depend completely on the mortgage lender and how their system determines a payment holiday VS a real missed mortgage payment. 

Because of this, one of your best options would be to get in touch with a mortgage broker who can look at a range of available mortgage deals with different mortgage lenders to find one that offers a good deal and will accept you, despite having taken a payment holiday. 

Reported by a UK finance spokesperson, “lenders must lend responsibly and consider the affordability of the mortgage or loan in the long term. It would not be in the customer’s interest to lend more than they can reasonably afford”, as per the FCA’s rules. 

With this in mind, the lender should try to be fair and look at the bigger picture when assessing a borrower’s creditworthiness, and look at their overall financial ability to make repayments reliably and consistently. 

Some consumer experts have also said that customers might be able to get any payment holidays erased from their credit histories. To see if you can do this, you should check your score and history with each of the main credit reference agencies and you may be able to contact them directly to see if they can delete the payment holiday. 

Had a payment holiday? - Check your score now 

If you’ve had a payment holiday, you should check your score to see if it’s been impacted and to make sure that the lender with which you had the payment holiday has submitted the correct information. 

One of the best places to check your score is Checkmyfile, as this credit-checking website uses all four CRAs to give you information about your rating. 

This way, you can look at your information from each CRA and identify any potential problems with your credit report, which will help you solve any problems and help to increase your score. 

If you are considering taking out a payment holiday, only do this once you have asked the lender about the potential implications it will have on your ability to borrow in the future, such as how they’re going to mark it on your credit report. 

For more information, take a look at our related guides below. To check your score with Checkmyfile now, simply tap the button to sign up for a free 30-day trial (easy to cancel):