Payment holiday and impact on moving to a new mortgage product next year

bluep

I've seen Martin's video today and the announcement about mortgage/loan payment holidays being extended.  The message before was clear that this wouldn't affect your credit score.  However, now they are saying that it will impact mortgage lender's decisions.

My current fixed mortgage deal with HSBC ends mid 2021 and I want to swap to one of their similar products i.e. fix for another 2-5 years.  I currently have a 3 months mortgage and personal loan break as work reduced our hours and pay.   As I won't be applying to a new lender, I am hoping that this won't be detrimental to me swapping to a new product - surely because they have already made the decision to lend to me, it would be unfair to insist I stay trapped on the standard variable rate? 

My reduction in salary is likely to continue for another few months so I'm not sure whether I should stop overpaying credit cards and use that money for mortgage instead and NOT apply for another 3 months payment holiday or, ask for the extended holiday to match the reduction in wages.  Is the damage already done anyway as I've had the first payment holiday?

Thrugelmir

Shouldn't be detrimental with regards to remaining with your existing lender. You'll still be offered a new product. If overpaying your credit cards is beneficial. Then continue to do so. Providing that you have the self discipline not to let the debt build again. 

[Deleted User]

Your credit score itself doesn't really matter, it is just Experian's, Clearscore's etc. interpretation of your credit record which is the important thing. The banks lending criteria is based on your credit record, which they all apply their own metrics to and that is where it becomes less transparent.

Your credit record will not show a default, that is the benefit of the mortgage payment holiday, it will however show that no payment was made in those months, allowing those institutions accessing it to assess your creditworthiness to see that you took a payment holiday. 

This will likely be built into their algorithms as an increased risk factor as it indicates a problem with finances in the short term, lack of reserves to cover for that etc. However as long as everything else is good it seems likely that it will not impact your ability to get a new mortgage. Certainly not any more than your drop in earnings showing on your self-assessment or P60 would show which is why someone would need a payment holiday in the first place. 

In terms of your debts no one really knows, but my guess would be that if you put as much into clearing your cards as possible and ideally have no other debts by the time you get a new mortgage then that would probably more than cancel out the effects of the payment holiday. Of course I could be totally wrong, as no one really knows how those calculations are made at the banks apart from the risk assessment departments themselves. 

bluep

Thrugelmir said:

Shouldn't be detrimental with regards to remaining with your existing lender. You'll still be offered a new product. If overpaying your credit cards is beneficial. Then continue to do so. Providing that you have the self discipline not to let the debt build again. 

To be honest, being stuck at home has been a bit of a bucket of cold water over my head around spending and the need to finally clear credit card debts.  I'm using this 6 months to completely change how I approach my personal finances.  My salary has decreased by exactly the amount of my mortgage though so the lack of commuting costs etc... leaves me with a chunk to pay off cards each month if I have a mortgage payment holiday.

Grumpy_chap

In normal times, paying off high rate credit cards and not paying lower rate mortgage seems logical.

If you plan to stay with HSBC, then you already owe them the money so they won't have to assess whether to lend it to you or not.  I noted the comparison sites recently HSBC had some good rates available - no information on where there market-position will be in a year's time.  That does not guarantee anything, I wanted to remortgage with my bank and they simply said my salary did not meet their minimum income level since they tightened the rules after the banking crisis - explanations about me owing them the money and easier to repay at a lower rate fell on deaf ears.

If you look to a new lender, and given the applications are assessed by computer without the opportunity for you to explain your actions, reasons and rational thinking, I can only assume that the computer would look at a lender that demonstrated financial resilience during this period as more favourable than one who needed the payment holiday straight off the bat.  It may be only a marginal assessment.  The biggest priority is probably getting back to 100% pay rather than furlough pay, and establishing that as the correct base-line.

bluep

I'm not on furlough - just on reduced hours and reduced pay at the moment.  It's predicted that we'll be back on normal pay within 2-4 months.  To be honest things are not bad at all - without commmuting and other work costs, I have around £1k a month to play with - I could use this to pay my mortgage if I didn't ask for a further payment holiday or I could repay more credit cards.  I then should have a 6 month period of normal mortgage payments and normal salary levels before lookign to get a new mortgage product from HSBC and my salary multiples are above what I'd need for the mortgage I've got anyway (like double the multiple that I would need).

TrishT

A payment holiday with Tesco bank (loan) has, despite all assurances to the contrary, ended in a bad credit rating at experion. Any advice? 

dunstonh

TrishT said:

A payment holiday with Tesco bank (loan) has, despite all assurances to the contrary, ended in a bad credit rating at experion. Any advice? 

No-one takes any notice of the score.  They interpret the data as they see fit.  Just as lenders will do. The actual score is meaningless.

Thrugelmir

TrishT said:

A payment holiday with Tesco bank (loan) has, despite all assurances to the contrary, ended in a bad credit rating at experion. Any advice? 

Start your own thread. With some more detail.