The potential impact of payment holidays: find out where you stand

A number of people have got in touch to say their Government approved mortgage or loan payment holidays taken over the pandemic have had a negative impact on their credit scores, despite assurances that this wouldn’t happen.

Some seem to have been told rather bluntly that regardless of what was promised at the time, the payment holiday has been registered as a ‘default’ or ‘missed’ payment.

So we spoke to experts at the UK’s three leading credit reference agencies to find out what was going on.

What happened with payment holidays over the lockdown?

Over the pandemic, the Government announced a range of initiatives to give people a bit of breathing space while the lockdown rules and restrictions were in force. One of the most welcomed proposals was to allow people to take a brief ‘holiday’ from their mortgage payments (and other regular financial outgoings such as monthly credit card payments).

These payment holidays (also referred to as an ‘emergency payment freeze’) allowed people to take a three-month break from their payments – later extended to six months. The same applied to loans and other credit agreements, with the duration depending on if and when you’d last had a payment holiday. All pandemic-linked payment holidays came to an end on 31 July 2021.

The term ‘payment holiday’ seems to have caused a considerable amount of confusion for people as there’s an implication there are no consequences. Resolver surveyed people earlier in the year and found that a third of people who had taken a payment holiday didn’t realise that the interest would be applied – and the missing payments would still be due. A similar number felt the holiday wasn’t clearly explained to them by the lender. 

It’s vital that you speak to your lender if you feel misled – particularly given the sheer number of people taking payment holidays. Lisa Hardstaff, head of customer experience at Equifax told us: “Our data shows a spike in applications for payment holidays in March 2021 and we have seen that over 4.4 million have opted to freeze loan repayments in the 12 months to March 2021.”

Tailored support

Lenders are supposed to treat you fairly if you’re struggling financially, but there isn’t a one size fits all model. Outside of the agreed six month payment holiday, lenders could offer ‘tailored support’ – a range of measures like reduced payments, interest suspension and more – to help you get back on your feet. These measures did go on your credit file over the pandemic.

Tailored support has been available for many years and is usually used to help people in financial difficulties stay afloat, but it’s not indefinite though. Many people are unaware that these arrangements can have an impact on whether other lenders offer them credit or further lending.

Payment holidays and credit reference agencies

As promised by the Government, regulator and credit agencies, your agreement over lockdown will not be listed as a default or missed payment. 

How it actually appears on your credit file depends on how the credit reference agency publishes what the lender has told it, but you can get your statutory free report online through all the top credit reference agencies and have a look yourself. There’s also  guidance on the sites on how to read the information.

Nothing’s wrong on my credit file but I can’t get a loan or mortgage

The lockdown payment holidays will not affect your credit score. But as the credit reference agencies explained, it’s the lenders that decide whether to lend to you or not. This will include the information you’ve provided on your application, bank statements and other criteria outside of your credit file.

The lender should have made it clear that you have not ‘missed’ payments on your credit file. But if you speak to another lender, it could work out from your file that you’ve taken a payment holiday, for example, if your mortgage hasn’t gone down. So your file is fine, but it’s searched for hints of a payment holiday and decided not to lend. This is more likely to be revealed on your bank statements.

Will payment holidays after April 2021 have an impact on my file?

Payment reductions or freezes agreed from April onwards will be marked on credit files, so yes, potentially. Lenders should be making this absolutely clear before you agree to the holiday – and you may be able to complain if they didn’t do this.

What can you do if you’ve been turned down for credit?

Firstly, ask the lender if you’ve failed the credit reference agency check or its own credit score – then you’ll know where the problem lies. Annoyingly, the lender doesn’t have to give you much more information, but if you phrase the question differently you might get a better result. So, asking what you can do to improve your score rather than why you failed might get you the information you need. 

Don’t forget that credit reference agencies can fill you in about other factors affecting your credit file, such as electoral roll problems. And bear in mind all the credit file urban myths that you don’t need to worry about. That terrible ex tenant of your property should not be having an impact on your credit score, for example.

 Resolver can help you with all your loan and mortgage problems for free.