It's winter for credit, so should you take a home-loan holiday?

As lending dries up and bills soar, more borrowers are taking advantage of payment breaks. Sue Hayward asks if this is a solution or a problem postponed

Going on holiday can be the perfect antidote if you're stressed with work worries, and if it's your bank account that's feeling the pressure, you can adopt the same principle and take time out with a "mortgage holiday". But while this sounds convenient, could suspending your mortgage payments temporarily just cause you bigger financial headaches in the future?

More and more mortgage products claim to offer borrowers greater flexibility through the facility for taking payment breaks – in some cases, after you've been a customer for just three months.

Sean Gardner from the financial-comparison site says that 50 per cent of mortgage products offered this option last year – "now it's 58 per cent". But he warns that payment holidays do carry some baggage in that "you're in effect extending your mortgage", as any missed payments are added on to the original loan.

Lenders providing the chance to suspend payments include the Halifax, Lloyds TSB, Intelligent Finance and Nationwide, and this flexibility is proving popular with borrowers, particularly given the credit crunch and the rising cost of living.

Intelligent Finance says the number of applications it has received for payment holidays has more than doubled in the past six months, explaining that one of the main factors is customers looking to pay back credit card debt. Nationwide also reports a rise in applications, particularly over the past eight weeks.

In the current climate, says Mr Gardner, a mortgage holiday can prove the only practical way for some borrowers to get their hands on extra cash, "as anyone with an adverse credit history may experience problems" arranging loans or credit cards.

How much time off you can have varies according to the individual lender. Intelligent Finance allows borrowers to take mortgage breaks only after a year, and then for a month on two separate occasions every calendar year. At the Halifax, you need to have been a customer for three months, at which point you can have six months off.

Nationwide, meanwhile, offers up to a year's holiday. To qualify, says a spokeswoman, you'll need a year's borrowing behind you and your "mortgage must be less than 80 per cent of the value of your home at the end of the payment holiday".

Other lenders, such as HSBC, don't actively promote the mortgage-break option. Spokesman Tim Pie says it will be allowed only if customers have "already overpaid their mortgage by that amount and won't end up in arrears".

GE Money is another lender that doesn't routinely offer holidays. "People don't realise this can prove more expensive in the long run," says spokesman Tom Wilson. "TV adverts talk about taking a mortgage break to go travelling, but people forget they've got to pay this money back plus interest."

It's for this reason that payment breaks should "carry a health warning", according to Cristina Rebollo from financial-comparison site She says taking 12 months off from repayments on the average £150,000 loan can be costly, as once interest is added, "you've effectively doubled the cost of those unpaid months if you leave the extra money on your loan long term".

Ms Rebollo adds that there should be measures in place where lenders must routinely provide detailed illustrations showing customers how much a few months off could cost them in the end.

But the Financial Services Authority, the City watchdog, has a different view. "We don't dictate criteria to lenders for allowing mortgage breaks," explains FSA spokesman Adam Richards-Gray.

Another key consideration is when to take a mortgage break. Logically, it will be at a time of change in your lifestyle or career, such as going freelance or starting a family. However, as Ms Rebollo warns: "If you're on a two-year fixed-rate deal and take a one-year break, this eats into a year of your fix." That would mean you've sacrificed a year of a cheap deal, possibly ending up on a much higher rate when it's time to repay the extra money.

Naturally, you must have your lender's permission before you stop making payments, as any unauthorised non-payment goes on record as arrears and can affect your credit rating.

Do so with authorisation, though, and "it won't affect your rating", says James Jones from the Experian credit-reference agency. "When updating records, lenders use special codes for customers taking mortgage breaks," he adds. This shows up on your credit record as if the mortgage were up to date.

Mr Jones says that if customers are really concerned, they should get a copy of their credit report a couple of months into their mortgage holiday to check the details are correct.

'A few thousand more on our mortgage is a small price to pay'

Gemma Bailey, 30, and her husband, Russell Bailey, 29, from Swindon are taking a year's mortgage break from June, which they've planned to coincide with the birth of their first baby.

Gemma will be starting a year's maternity leave from her administration job and says they've made the decision because "we'll be losing my income and for most of that time I'll be on statutory maternity pay, which works out at just over £100 a week".

The couple have a £120,000 loan with Nationwide on their three-bed property and currently pay £700 a month. "The way I see it is that this is going to be an expensive time – buying things for the baby," says Gemma. "So adding a few thousand to our mortgage is a small price to pay for peace of mind for a year and no financial worries."

Although Gemma admits she's not sure how much the mortgage holiday will cost, she and her husband intend to work hard at overpaying on the loan once she returns to full-time employment. "With our current deal, we can overpay by up to £500 a month without incurring penalty fees, so we'll be contributing as much as we can as soon as we can. But I can see us doing this again in the future if we have more children."

Mia Freedman, editorial director of the Mamamia website, reads out a tweet she was sent.
Arts and Entertainment
The write stuff: masters of story-telling James Joyce, left, and Thomas Hardy
books...begging to differ, John Walsh can't even begin to number the ways
Jose Mourinho on Sky Sports
footballEXCLUSIVE COLUMN Paul Scholes: It was not a leg-breaking tackle, as the Chelsea manager had claimed
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Beverley James: Transactions Manager

    £30,000: Beverley James: A fantastic opportunity has arisen for a person looki...

    Beverley James: Sales Ledger Clerk

    £26,000: Beverley James: A fantastic opportunity has arisen for a person looki...

    Anna Woodward: Invoicing Clerk

    £21,500: Anna Woodward: The Accounts Payable team for this group is recruiting...

    Ann: Senior Finance Analyst

    £45,000: Ann: My client is a FTSE 250 retailer based in Central London and the...

    Day In a Page

    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?
    How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

    Time to play God

    Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
    MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

    MacGyver returns, but with a difference

    Handyman hero of classic 1980s TV series to be recast as a woman
    Tunnel renaissance: Why cities are hiding roads down in the ground

    Tunnel renaissance

    Why cities are hiding roads underground
    'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

    Boys to men

    The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
    Crufts 2015: Should foreign dogs be allowed to compete?

    Crufts 2015

    Should foreign dogs be allowed to compete?
    10 best projectors

    How to make your home cinema more cinematic: 10 best projectors

    Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
    Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

    Manchester City vs Barcelona player ratings

    Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
    Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

    Monaco: the making of Wenger

    Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
    Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

    Chris Gayle: The West Indies' enigma

    Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
    In Ukraine a dark world of hybrid warfare and murky loyalties prevails

    In Ukraine a dark world of hybrid warfare

    This war in the shadows has been going on since the fall of Mr Yanukovych
    'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

    Homage or plagiarism?

    'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
    Broadchurch ends as damp squib not even David Tennant can revive

    A damp squib not even David Tennant can revive

    Broadchurch, Series 2 finale, review
    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

    Inside the mansion of Germany's 'Bishop of Bling'

    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower