You are here: Home - Credit Cards & Loans - News -

Days left to apply for payment holidays

Written by: Emma Lunn
Cash strapped borrowers have just four days left to apply for payment holidays on mortgages, credit cards and loans.

The deadline for applying for the three-month payment holidays is 31 October – which is this Saturday.

After this date, banks and building societies will no longer be required to offer formal payment deferrals to customers and will instead be expected to give tailored support to borrowers affected by the pandemic.

Chancellor Rishi Sunak announced on 17 March that mortgage lenders would provide customers with three months of payment holidays in a bid to support financial security amid the coronavirus pandemic.

In June the Financial Conduct Authority (FCA) announced that the mortgage payment holidays could be taken for a further three months and gave customers yet to apply for a payment holiday a deadline of 31 October 2020 to do so.

An initial three-month payment break on non-secured debt such as credit cards and loans was introduced in April. A further three-month pause on payments was announced in July.

Again, borrowers have up until 31 October to apply for a payment holiday.

How can I apply for a payment holiday?

If you’re struggling to pay your mortgage, credit card debt or a loan you have until Saturday to apply for a three-month payment holiday.

Most banks and building societies offer the facility to apply for this online or via your online banking – or you can apply over the phone.

Once you’ve set up the deferral you won’t need to make a payment for three months. However, interest will still accrue on your debt and it will take longer, and cost more, to settle the debt.

What happens when payment holidays end?

The past seven months have seen more than 4.4m payment deferrals granted, including 2.5 million mortgage holidays, 1.1 million credit card deferrals, and 793,000 personal loan deferrals.

After next week’s deadline, banks will offer ongoing tailored support for customers rather than formal payment holidays.

Trade body UK Finance says further measures for struggling mortgage customers may include extending their mortgage terms, switching temporarily to an interest-only mortgage or deferring interest payments.

When it comes to credit cards and loans, lenders could offer reduced payments for a further period. Those borrowers facing longer-lasting hardship could be offered a long-term repayment plan or have their credit refinanced at an affordable rate.

Keep an eye on your credit score

Credit scores have remained largely unaffected since the beginning of the first lockdown in March 2020.

This is largely down to the FCA’s involvement in ensuring payment holidays did not negatively impact consumer’s credit reports.

But consumers who don’t start making debt repayments again are likely to see a negative impact on their credit score.

Justin Basini, CEO and co-founder of ClearScore, said: “Once the credit score amnesty ends, it could take up to three months for consumers to see any change to their credit files if they are unable to meet repayments for their credit products. This is due to different lenders taking varying amounts of time to report to credit reference agencies. This could result in thousands of people entering the New Year – a key period for financial resets – unable to take out new financial products to improve their situations.

“The current average credit score in the UK is 360 (according to Equifax scale out of 700) – our user data shows that consumers’ credit scores could drop by up to 124 points if they find themselves unable to repay debt such as credit cards, loans and mortgages for three concurrent months. This drop in credit score would likely trigger a black mark being added to someone’s credit file, making accessing credit almost impossible.”

What else is happening on 31 October?

Halloween is a key date for coronavirus support – it’s when many measures introduced at the outset of the pandemic come to an end.

Most notably, the Coronavirus Jobs Retention Scheme – the furlough scheme – will be replaced by the Jobs Support Scheme.

Banks will no longer be obliged to offer a £500 free overdraft to struggling borrowers. Instead overdrafts will be subject to normal interest rates, which could be up to 40% in some cases.

There is some good news though. The government announced in May that parents would still be eligible for 30 hours free childcare if their income dropped below the minimum threshold as a result of coronavirus.

The protection was put in place until the end of the summer term and then extended until the end of October – and this week the government announced that it’s being extended again.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

The savings accounts paying the most interest

It’s time to get your finances in shape, and moving your cash savings to a higher paying deal is a good plac...

Everything you need to know about being furloughed

Few people had heard of ‘furlough’ before March 2020, but the coronavirus pandemic thrust the idea of bein...

The experts’ guide to sorting out your personal finances in 2021

From opting to ‘low spend’ months to imposing your own ‘cooling-off period’, industry experts reveal t...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week