New information uncovered by MoneySavingExpert.com indicates taking a payment holiday on a mortgage or on other forms of credit may have an impact on future credit applications. It comes despite promises that credit scores won’t be affected.
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Mortgage payment holidays are something which many people will be contacting their lenders about, as Britons try to cope with the financial impact of the coronavirus (COVID-19) crisis in the UK.
Agreed mortgage payment holidays are not supposed to have a negative impact on a person’s credit file.
This is because the borrower is making the agreed payments – because during the time frame, the amount agreed is nothing.
However, the Financial Conduct Authority (FCA) has confirmed to Money Saving Expert that in practice, a lender could factor a payment holiday into an acceptance decision, as many new lenders use a new range of methods to assess people’s finances.
Rather than just credit scores, it may be other methods are used such as Open Banking.
Furthermore, Money Saving Expert reports that several major lenders also indicated that payment holidays could be factored in when assessing a future application for mortgage or credit.
Martin Lewis, founder of MoneySavingExpert.com, said: “The FCA has confirmed, sadly, that while credit files shouldn’t be impacted by mortgage or other payment holidays, lenders are still allowed to take them into account when making their acceptance decisions.
“It’s impossible to say yet how widespread this will be or how substantial the impact will be – we’ll start to learn that over the next year.
“Each lender’s assessment process is different, it’s a dark art that’s hidden from the public and never published, so this is likely to be yet another factor applicants will need to navigate.
“Certainly many new challenger financial firms talk about their new, more sophisticated customer assessment models, that they believe are better than just relying on credit files.
“It’s that very fact that sparked me to look at this in the first place.
“And as they will be able to see that someone has temporarily not paid their mortgage, they can spot payment holidays.
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“My hope is that as these holidays are specifically for the short-term financial hit of coronavirus – and as the practice is so widespread – it won’t be used by many firms, and where it is it won’t tarnish individuals’ credit reputation for too long.
“But there’s no real way to know.”
Despite this, Mr Lewis has urged those struggling to make ends meet to not be offput in seeking a mortgage holiday, if they need the money to get by during the coronavirus crisis.
“Most importantly, I don’t believe this should stop anyone who needs a mortgage holiday from getting one – if it’s crucial for cash flow, just do it,” he said.
However, it may be that the recent indications may cause some unsure about whether to get a mortgage holiday to take a closer look at whether they think it’s right for them.
This is something which the financial journalist addressed.
He said: “Yet for those on the border, who may find it temporarily useful but can cope without it, add this to the fact that interest racks up during the payment holiday and I’d err on the side of caution.”
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