Cost of living crisis: you can cut your bills, but there may be pitfalls
As the cost of living crisis deepens, you may be assessing your regular monthly outgoings and looking for things you can cut back on.
If you are lucky enough to be a homeowner, your biggest monthly expense is likely to be your mortgage. But will your lender allow you to reduce your payments if you explain that you are struggling? And how will that affect your credit record?
Similarly, if you have life insurance or a pension, can you take a break from your payments, and what will the consequences be?
According to UK Finance, the trade association for banks, mortgage lenders should offer “forbearance” to any customer who is in financial difficulty or unable to make their mortgage payments.
This could take the form of an authorised payment holiday, where your lender gives you permission not to pay your mortgage for a short period, usually up to three months. Alternatively, with your lender’s permission, you may be allowed to reduce your monthly repayments.
These arrangements come at a cost. Any payment holiday will be noted on your credit record, which could have implications the next time you want to borrow money – you may, for example, be charged a higher interest rate. You will also be expected to pay back everything you have missed paying once you are no longer in financial difficulty. Your mortgage is likely to cost you significantly more in the long run.
“The big downside of payment holidays is that you end up with a bigger mortgage to contend with when you do restart making payments,” says David Hollingworth of the mortgage broker L&C.
Every day that you don’t reduce the original sum you owe you will be accruing interest on it. Plus, you will have to make up the missing payments.
That means “you end up making a higher
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