A Standard Life Foundation study has found that 60 per cent of the 3.7m households currently on some type of payment holiday – be that for their mortgage or otherwise – could find it tough to find their financial footing come November.
Most payment holidays are due to finish on 31 October this year, which is the same date that the furlough scheme ends, meaning that many people may find themselves jobless or working shorter hours while facing increased bills.
The report shows that of the households on a payment holiday, 46 per cent believe it is “very likely” they will experience a loss of earnings in the last quarter of the year and 20 per cent that it is “quite likely”.
Standard Life Foundation adds that at the end of July, with the furlough programme and payment holidays in full swing, 31 per cent of households on these schemes were going through financial difficulties.
Debt advice is not being sought at any scale, either: the report estimates than 1.6 million households should receive advice, but only a quarter have do so. It warns that last minute demand could see debt advice charities swamped.
The foundation says that creditors and regulators have to be proactive in arranging “a creative suite of sympathetic forbearance measures”. This could include flexible and lower payment arrangements, social tariffs for utility provides and extended lending periods.
One of the authors of the report, professor Elaine Kempson goes further in saying that, “Like Germany and Norway, the UK government should extend the job retention schemes, particularly for less skilled workers in hard-hit sectors of the economy.”
In mid-April, UK Finance reported that more than 1.2 million mortgage payment holidays had been offered to UK households – equal to one in nine mortgages.
Later, in August, the FCA outlined proposals for how it expects lenders to treat borrowers who are in financial difficulty as a result of the pandemic once the payment holiday period ends, which includes moving borrowers onto different types of loans and reducing interest rates.
Standard Life Foundation chief executive Mubin Haq says: “We are facing a cliff-edge situation at the end of October… already nearly half of those on payment holidays are using credit to pay for food and other daily essential expenses.
“Regulators and lenders need to rapidly consider how they will manage the situation from the end of October 2020 to avoid large numbers of households facing enforcement action, including families losing their homes.
“In addition, capacity on debt advice needs to be increased quickly; more debt advisors are needed but they will not be in place within the next few months, so interim measures should be put in place swiftly.”
