How will temporary mortgage arrangement affect my credit?

Dear James,

My husband is on unpaid leave from work due to lack of work.  We have a mortgage with Halifax and unfortunately the bank can't offer us payment holiday because we don’t have enough equity on our house.  They have said they can defer our mortgage payments by three months.  This means it won't go into arrears or default because we have arranged this with bank and they have deferred payment.  However, they did advise that a letter would be sent to the credit agencies advising them we have an agreed payment with the bank.  Are you able to advise before we make a decision how bad this will affect our credit rating?  Are we talking long or short term?

DF, Glasgow

Dear DF,

What the Halifax is suggesting is a temporary arrangement to vary your regular mortgage payments. The arrangement would be marked on your credit report using what we call a ‘flag’, so other lenders would be able to see this. Usually, during an arrangement, lenders continue to record payment codes on your report based on your original payment schedule, meaning reduced payments result in a period of arrears on your report. If you’ve agreed that arrears will not be registered I would urge you to get this in writing, just to avoid any confusion and problems later on. I would also keep a close eye on your report. After the arrangement has expired, the account should return to normal, assuming any deficit is caught up and regular payments resume. The fact that you entered into an arrangement in the past will usually continue to show on the account for three years. In terms of how this affects credit scoring, it really depends on the lender making the assessment. A period of arrears is never good news, but the fact that you kept in touch with the lender and came to an arrangement should work in your favour. Furthermore, lenders tend to focus on your recent credit history, so the impact of any past arrears should reduce as time goes on. (July 2014)

James
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