Last reviewed: June 2026
TL;DR- Flexible mortgages allow overpayments (reducing balance and interest), underpayments (drawing on previous overpayments) and in some cases payment holidays.
- The term "flexible mortgage" is not formally defined by the FCA - features vary significantly between lenders and products.
- Overpayment facilities are now common on many standard mortgages; the full flexible feature set is less widely available.
- Payment holidays are not automatic rights - they require lender agreement and are subject to conduct rules around forbearance.
What Makes a Mortgage Flexible?
The term flexible mortgage covers a range of products and features rather than a single defined product type. In the broadest sense, a flexible mortgage is one that allows the borrower to vary payments and access credit above and below the standard contractual payment. The features most commonly associated with flexible mortgages include:
- Overpayments: paying more than the contractual monthly amount, reducing the outstanding balance and cutting total interest paid.
- Underpayments: paying less than the contractual amount in a given month, drawing on a reserve built up through previous overpayments.
- Payment holidays: pausing payments entirely for an agreed period, subject to lender consent.
- Drawdown: withdrawing previously overpaid funds from the mortgage account, effectively borrowing back against the overpayment reserve.
- Daily interest calculation: interest calculated daily on the outstanding balance rather than monthly or annually, meaning overpayments reduce the interest charge immediately.
Overpayment Facilities on Standard Mortgages
Overpayment facilities - typically allowing up to 10% of the outstanding balance per year without an early repayment charge - are now a standard feature on most UK residential mortgages, including many fixed rate products. This partial flexibility means that full flexible mortgages - with underpayment and drawdown features - are a smaller niche rather than a mainstream requirement for borrowers who primarily want to overpay.
Payment Holidays: Rules and Eligibility
A payment holiday is an agreed suspension of mortgage payments for a defined period, during which interest continues to accrue and is added to the outstanding balance. Payment holidays require lender agreement and are not an automatic right.
During the Covid-19 pandemic, the FCA introduced temporary payment holiday rules requiring lenders to offer up to six months of payment deferrals to borrowers affected by the pandemic. These temporary rules have expired. Payment concessions are now governed by the standard FCA MCOB forbearance rules, which require lenders to treat customers in financial difficulty fairly and consider a range of options including temporary payment reductions before pursuing enforcement action.
A payment holiday should not be confused with a payment deferral arranged under FCA forbearance rules for borrowers in financial difficulty - the former is a planned feature of a flexible mortgage, the latter is a response to financial hardship.
Drawdown Facilities
A drawdown facility allows the borrower to withdraw previously overpaid funds from the mortgage. This effectively turns the overpayment reserve into a revolving credit facility secured against the property. Not all mortgages with overpayment facilities include a drawdown option - in many cases overpayments permanently reduce the balance and cannot be withdrawn without remortgaging. Borrowers who want the ability to access overpaid funds should specifically check whether a drawdown facility is included in the product terms.
Flexible Mortgage Pricing
Flexible mortgage products historically carried a rate premium over equivalent standard products to reflect the cost of providing the flexibility features. In the current market, as overpayment facilities have become standard on most products, the pricing differential for full flexible features has narrowed. Borrowers should compare the total cost of a flexible product - rate, fees and the value of the flexibility features relative to their circumstances - against standard alternatives.
Frequently Asked Questions
Can I take a payment holiday on any mortgage?
No. Payment holidays are not an automatic feature of all mortgages. They require lender agreement and are typically only available where the borrower has built up a sufficient overpayment reserve or where the lender agrees to a temporary concession. Borrowers who want payment holiday flexibility should check whether this feature is specifically included in the product terms before committing.
Does interest still accrue during a payment holiday?
Yes. Interest continues to accrue on the outstanding balance during a payment holiday. The accrued interest is typically added to the outstanding balance, increasing the total loan amount. After the payment holiday ends, monthly payments may increase to account for the additional balance and interest, or the term may be extended. Lenders must explain the impact clearly before agreeing to a payment holiday under FCA conduct rules.
What is the difference between underpayment and a payment holiday?
An underpayment reduces the monthly payment to below the contractual amount, drawing on an overpayment reserve built up previously. It requires that the borrower has already overpaid sufficiently to create the reserve. A payment holiday suspends payments entirely for an agreed period and does not require a prior overpayment reserve - it is a concession agreed with the lender.
Are flexible mortgages only available on variable rate products?
No. Flexible features - particularly overpayment facilities - are available on both fixed and variable rate mortgages. Full drawdown and underpayment features are more commonly found on variable rate or specialist flexible products, but the specific features available depend on the individual product rather than the rate type.
