Last reviewed: June 2026
TL;DR- A payment holiday is a temporary agreement with the lender to pause mortgage payments for a defined period - it is not a right and must be applied for.
- Interest continues to accrue during the payment holiday and is added to the outstanding balance, increasing the total debt and future payments.
- The Covid-19 pandemic payment deferrals (up to six months, automatic) ended in 2021 - current payment holidays require lender assessment under standard forbearance rules.
- A payment holiday arranged under FCA forbearance rules should not be recorded as missed payments on the credit file if the lender follows correct procedures.
What Is a Mortgage Payment Holiday?
A mortgage payment holiday is an agreed temporary suspension of monthly mortgage payments for a defined period, during which interest continues to accrue. Payment holidays are not automatic - they require the lender's agreement. After the payment holiday ends, the borrower resumes payments, which may be higher to reflect the additional interest accrued and to ensure the mortgage is repaid within the original term, or the term may be extended.
Payment holidays should not be confused with the overpayment-based underpayment facility available on some flexible mortgages, or with the payment holiday provisions built into some mortgage products as a contracted feature. A standard payment holiday is a forbearance arrangement agreed because the borrower is experiencing temporary financial difficulty.
The Post-Pandemic Position
During the Covid-19 pandemic, the FCA introduced temporary rules requiring lenders to offer up to six months of payment deferrals to borrowers affected by the pandemic, without the need for individual assessment and without the deferrals being recorded as missed payments on credit files. These temporary rules expired in July 2021. From that point, payment holidays have reverted to the standard FCA forbearance framework, which requires lenders to assess individual circumstances and consider a range of options proportionate to the borrower's situation.
How to Request a Payment Holiday
Borrowers who need to pause payments should contact their lender as soon as possible - before the payment date if possible. The lender will ask for information about the reason for the difficulty, the expected duration of the problem and the borrower's overall financial position. The lender is required by FCA rules to engage constructively and consider a range of forbearance options, of which a payment holiday may be one. The lender grants the payment holiday (or alternative forbearance) in writing, specifying the duration and terms.
Interest Accrual During the Holiday
During the payment holiday, interest continues to accrue daily on the outstanding balance. The accrued interest is added to the outstanding balance (capitalised). After the payment holiday ends, the borrower's monthly payment typically increases to ensure the mortgage is repaid within the original term, or the term is extended. The borrower should request a projection of the post-holiday payment and total cost before agreeing to a payment holiday.
Frequently Asked Questions
Does a payment holiday affect my credit file?
A payment holiday agreed under FCA forbearance rules should be reported correctly to credit reference agencies - it should not be recorded as missed payments if the lender follows FCA guidance. However, some lenders may apply a payment arrangement marker to the credit file, which can still affect future credit applications. Borrowers should ask their lender how the payment holiday will be reported to credit reference agencies before agreeing to it.
How much does a payment holiday add to the total cost?
The additional cost depends on the loan size, interest rate and duration of the holiday. On a £200,000 mortgage at 5%, a three-month payment holiday would result in approximately £2,500 in additional interest accrual added to the balance. This additional balance then accrues further interest over the remaining term. The full long-term cost of the holiday is therefore higher than the short-term accrual figure. Lenders must provide a clear explanation of the total cost before the holiday is agreed.
Can I take a payment holiday if I am in arrears?
If the borrower is already in arrears (has missed previous payments), a payment holiday may still be possible as part of an overall forbearance arrangement, but the lender will assess the total arrears position and the likelihood of the borrower resolving the arrears. Ongoing arrears are a more serious situation than a temporary prospective payment difficulty - lenders may have a different range of forbearance options available depending on the specific circumstances.
Can I take a payment holiday on a buy-to-let mortgage?
Buy-to-let mortgages are not regulated by the FCA in the same way as residential mortgages, so the FCA's forbearance rules do not automatically apply. However, BTL lenders generally have their own forbearance policies for landlords experiencing difficulty - for example, due to prolonged void periods or tenant default. The approach varies by lender and is not standardised in the same way as for regulated residential mortgages.
