The Scotsman

Mortgage holidays may not upset credit score but could affect future borrowing

Warning deferrals can be used to inform a lender’s decision to lend you money in the future

- Smart Money with Gareth Shaw Gareth Shaw is the Head of Money at which.co.uk

QRight at the beginning of the first lockdown, I took a three-month mortgage payment holiday. I took another three-month holiday in October. I recently checked my credit report, and the second payment holiday has been recorded as missed payments. Is this correct?

AThe pandemic prompted the government, regulators and banks to take unpreceden­ted action to support people financiall­y. One of the most important of these measures was the offer of a mortgage payment holiday, allowing borrowers to pause their repayments for a set period if they couldn’t afford to make them. This was in addition to a moratorium on house repossessi­ons and a whole host of other support measures.

According to data from banking trade body UK Finance, banks agreed to 2.7 million mortgage payment deferrals. Homeowners have been allowed to take six months of payment holidays. Banks have not carried out formal affordabil­ity checks, instead allowing homeowners to self-certify that their income has been affected by the pandemic.

As part of the package of measures on payment holidays, regulators demanded that borrowers’ credit histories weren’t affected by taking a mortgage payment holiday. Last year, the UK’S three main credit reference agencies,

Experian, Equifax and Transunion, agreed to an ‘emergency payment freeze’, ensuring that your credit score would not be affected.

So, what should your credit report look like? In essence, your payment status shouldn’t change – if you’re up to date with your repayments, your credit file should still appear that way. The months where you have

taken a mortgage payment holiday should be reported as no payment being due that month.

This is important as missed payments have a negative impact on your credit score and would remain on your file for several years. This could impinge on your ability to borrow in the future or mean that you can only access more expensive products,

as the most attractive credit products tend to only be available for those with excellent credit histories.

If there is a mistake and your lender incorrectl­y marks a payment deferral as a missed payment, it’s important to act quickly. The lender should be able to fix the mistake, but you can also raise the error with all the credit reference agencies, which

allow you to raise disputes online. The credit reference agency can cross-check with the lender and amend your file. I would suggest attacking the issue from all sides.

A word of warning for the future. While the mortgage payment scheme should never affect your credit score, a deferral can be used to inform a lender’s decision to lend you money in the future.

It may see that you took out a payment holiday and decide that you are the type of customer it doesn’t want to lend to in the future. We don’t know how much of an issue this is now, but it is worth understand­ing the full implicatio­ns of taking advantage of the mortgage payment holiday scheme.

 ??  ?? 0 According to data from banking trade body UK Finance, banks agreed to 2.7m mortgage payment deferrals. Picture: Rui Vieira/pa Wire
0 According to data from banking trade body UK Finance, banks agreed to 2.7m mortgage payment deferrals. Picture: Rui Vieira/pa Wire
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