Want time off from paying your mortgage? Yorkshire Building Society's new two-year fixed-rate deal can give you exactly that. But could it be a sensible idea?
Mortgage payment holidays – lender-approved breaks from making repayments – may seem attractive, however they may not be as relaxing as a visit to the beach.
Some 29% of all mortgage deals allow payment holidays, according to our analysis of data from Moneyfacts. For first-time buyers, that figure is even lower, at 19%.
This new deal from Yorkshire Building Society (YBS) is available to a person with 10% deposit, first-time buyers included. In addition to mortgage holidays, it enables you to definitely underpay your mortgage in a few circumstances.
Here, we explain how loan payment holidays work, how the new deal from YBS compares and just what you should consider before you pack for any mortgage vacation.
How do loan payment holidays work?
If you've spent years saving diligently for the deposit, a home loan that allows you to skip payments may sound just like a relief.
But many lenders that do allow payment holidays is only going to grant them if you meet certain criteria.
With the new YBS mortgage, payment holidays and underpayments are just allowed if you make equivalent overpayments first.
Say you normally pay lb200 a month for your mortgage. Should you overpay lb10 per month for 25 months, you will be lb200 in credit. This can allow you to take 30 days removed from paying. Similarly, if you overpay by lb100 one month, you could underpay by lb100 the following month.
Rather than paid annual leave, this really is a lot more like working overtime for time off in lieu.
YBS told us that it offers payment holidays to provide homeowners enhanced flexibility in the way they make their debts.
If you overpay before the run up to Christmas, for example, you could take a payment holiday in to save money on presents and socialising.
The building society also advises that when overpayments have been made, they can’t be claimed back, so homeowners should plan carefully for their circumstances.
YBS new payment holiday mortgage: so how exactly does it compare?
With a preliminary rate of 1.84%, the YBS new mortgage compares favourably along with other first-time buyer deals that offer payment holidays.
The only deal that beats it on initial rate is another product from YBS, with a lower 1.79% initial rate and many of the identical features. The more expensive deal, however, features a free valuation and lb500 cashback included, along with a lower fee.
The new mortgage is also a competitive first-time buyer deal overall, regardless of whether payment holidays are offered or otherwise, because the table below shows.
In relation to how accessible its payment holidays are, YBS isn't that unusual in requiring overpayments first.
However, you will find first-time buyer mortgages out there that permit payment holidays based on other criteria.
Coventry Building Society says it takes 'a number of factors' into consideration before granting payment holidays, including a mortgage's loan value and the date it had been taken out.
Halifax grants payment holidays based on a selection of criteria, including that mortgage payments, are up to date and that you haven't were built with a payment holiday in the final 3 years.
Should first-time buyers take payment holidays?
Taking some time from paying your mortgage does have its downsides.
Since these holidays involve skipping repayments, there's potential for an adverse impact on your credit rating.
We spoke towards the UK’s three biggest credit rating companies – Equifax, Experian, and TransUnion (formerly Callcredit) – and they all expressed that payment holidays really should not be a problem, so long as your original mortgage agreement allows for them.
If you are taking a payment holiday by special arrangement, however, it might cause issues.
A spokesperson for Equifax told us: ‘If someone makes an arrangement using the lender to lower mortgage payments outside the original terms throughout a duration of financial difficulty, this is flagged to some credit reference agency being an “arrangement to pay” and may have an affect on their credit score.’
It’s not just your credit rating that could have a hit from the payment holiday – conversely, your wallet could, too.
Since you will not be reducing your loan balance each month, interest will build up faster of computer might have otherwise.
There might be methods for you to lower your mortgage payments with less risk. When you are initial rate period has ended, for instance, it's wise to remortgage to a cheaper deal.
Since you will have built up equity, you will probably be able to secure lower monthly repayments while not having to rely on holidays.