Landlords, mortgage lenders and other creditors will need to comply with new rules that came into force this month requiring them to offer ‘breathing space’ to tenants or borrowers with debt problems.
The government estimates that up to 700,000 people will benefit from the changes, which allow them a 60-day grace period to put a payment plan in place without interest and fees piling up, letters chasing them for payment or enforcement action being taken. Those who are suffering from acute mental-health issues will have the duration of their crisis treatment plus 30 days.
Anyone who needs to use the standard breathing-space scheme must contact a Financial Conduct Authority authorised debt adviser who can set it up, or in some cases their local council if it provides debt counselling. For those in a mental-health crisis a medical prof- essional must contact a debt adviser on their behalf.
While both mortgage and rent arrears are covered by the scheme, the breathing-space applies only to debts built up before the grace period begins, and tenants and borrowers are expected to keep up their normal monthly housing payments while it lasts.
The measures come as new figures from the Office for National Statistics show that 21% of adults experienced some form of depression in early 2021, which is more than double the level observed before the pandemic when it was just 10%. Respondents were asked if they would be able to afford an unexpected expense of £850, and the prevalence of depression was higher among those who said they would not. Among those unable to afford the expense, 35% experienced depressive symptoms compared to 21% before the pandemic. Among those who could afford the expense, rates of depression had increased from 5% pre-pandemic to 13% in early 2021.
The Money and Mental Health Policy Institute has long campaigned for a breathing-space scheme. Its founder, Martin Lewis, says: “Debt is far more than just a financial issue. It’s a major cause of relationship breakdown, can hugely diminish people’s wellbeing, and sadly leaves hundreds of thousands at risk of taking their own life.
“That’s why breathing space is so important. It’s a win-win-win; for individuals who get their finances back on track, creditors who’ll recoup more cash in the long run, and the economy as there will be less financial catastrophe.
“I’m especially thrilled that our Money and Mental Health Policy Institute suggestion for recovery space is coming into fruition as part of this. That means, from now on, everyone receiving NHS crisis care for their mental health can recover without being hassled for escalating debt, fees and charges. Finally, people returning home after being hospitalised for their mental health can do it safe in the knowledge there’s no threat or reality of bailiffs knocking.”
Money Advice Trust chief executive Joanna Elson thinks the scheme will be an important incentive for people to seek free professional help to tackle their financial problems.
She says: “Free debt advice has never been more important than in helping households to recover from the impact of Covid-19 — and breathing space will strengthen our ability to help people at this crucial time.”
National Residential Landlords Association senior policy officer James Wood says: “As landlords can continue to request payment from a guarantor during a breathing space, it may also be sensible for them to consider having one in place as standard, particularly for tenants who spend a higher proportion of their income on rent. This provides some reassurance in the event that a repayment plan can’t be found.”
Ultimately, Woods believes the initiative should benefit landlords by helping tenants to get on top of arrears.
He says: “The goal of a breathing space is to give the tenant access to a debt adviser and find a payment plan that helps them pay off their debt, rather than letting it spiral out of control.”
Your Mortgage Decisions director Dominik Lipnicki says in the past financial services organisations have struggled to deal with the link between financial hardship and mental illness.
“Often lenders do not treat people in a mental-health crisis in a positive way and this is partly due to the lack of training that frontline staff are provided with. Anything that can help people to deal with an issue, without the added stress that paying the bills can cause, is good.
“That said, for some the 30 days past the duration of the crisis may not be enough, and that timeline may cause others more stress. We have all seen the mental-health toll that Covid has caused and allowances must be made to enable people to catch up. I fear that, even when Covid is no longer an issue, the financial fallout, particularly once furlough ends, will be with us for a considerable time.”
BTJ Mortgages director Jana Chetraru says the initiative is welcome but she is pleased that people will have to speak to a professional debt adviser in order to access breathing space.
“With mortgage payment holidays, some people used the deferral when they did not really need to and it had repercussions on their ability to borrow. It is good that anyone using this scheme will need to speak to a regulated debt adviser.”
