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Buy-to-let landlords are being warned not to use mortgage payment holidays unless absolutely necessary.

Chestertons, based in London, says that landlords should only use a so-called payment holiday being offered by lenders as a last resort, amid fears that it could potentially affect their ability to borrow in the future.

Lenders have so far agreed that 1.2 million homeowners can delay repayments as jobs are cut and wages reduced.

Typically, this defers a mortgage bill of £775 a month, with borrowers given the option of delaying up to three months of repayments.

But broker Chestertons and its recommended mortgage broker, Springtide Capital, point out that the missing payments will still show on an individual’s credit report and there is no way of knowing how banks will view or interpret that information in the medium to long term.

Chestertons said: “Every lender uses their own algorithms and underwriters to work out whether or not they want to take the risk of lending to someone.

“The algorithm and underwriters will look at an applicant’s whole credit report and use certain information to calculate their own credit score, which could be very different to the public credit score available through Experian etc.”

Chestertons offers examples of having multiple recent addresses or erratic payment history for a phone bill, which may not have a dramatic effect on a credit score, but could still affect the lender’s view of the borrower.

A spokesperson said: “Payment holidays are crucial for many people whose incomes have been affected by this pandemic and their introduction came as a big relief, but we are aware of many people who are not in any particular financial difficulties making enquiries about them.

“They often see it as an opportunity to improve their cash liquidity or to get ‘free money’ and have applied to their lenders, unaware of the potential consequences, when in fact switching to interest-only might have been a more appropriate move.”

By Marc Da Silva

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