Coronavirus payment holidays stop you getting a mortgage despite not affecting credit scores
TAKING a payment holiday during the coronavirus crisis may stop you from getting a mortgage despite promises that they won't affect your credit score, MoneySavingExpert has revealed.
During the coronavirus crisis, banks, credit card providers, personal loan lenders and car finance companies are offering customers three month payment breaks if they're financially struggling due to lockdown measures.
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Normally, taking a payment break would be reflected in your credit score, which lenders use to asses how risky you are as a borrower.
A bad score can affect whether your application is accepted, how much interest you pay and how much you can borrow.
Back in March, credit reporting agencies agreed that any borrower who takes up a payment holiday won't see their credit score impacted like it would in normal circumstances.
This is because many lenders rely on more than just your credit score when considering whether or not to give you a loan, such as Open Banking.
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Money saving guru Martin Lewis said that it's impossible to say how widespread the problem will be for borrowers in the future.
"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."
He also stressed that households shouldn't let this stop them from taking out the financial help now if they're currently facing difficulties during the pandemic.
Martin added: "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.
"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."
As of April 28, 1.6million payment freezes have been granted, according to banking trade body UK Finance - accounting for around one in seven UK mortgages.
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Yesterday, it was revealed that struggling households may be allowed to extend their mortgage holidays by a year to 18 months.
It follows the Bank of England warning that 1.5million jobs could be lost as the UK faces worst its worst ever recession.