Borrowers face ‘lender lottery’ as 323,000 payment freezes expire soon

Hundreds of thousands of people still on a break from their mortgages and unsecured debts are facing a possible “lender lottery” starting next month with the removal of sweeping protections.

The UK’s Banking Authority said financially vulnerable people taking advantage of 323,700 payment holidays across mortgages, credit cards and personal loans would be offered assistance “according to their individual circumstances”.

Those whose finances have been affected by the coronavirus pandemic were initially offered up to six months’ paid holidays in April and no-fee overdrafts of up to £500, but those measures will expire on 31 October.

Borrowers were allowed to freeze their credit card and other payments in APR for up to 6 months, though they still earned interest on their loans.

The potential brinkmanship at the end of this month comes at the same time as the government’s original furlough scheme is set to expire as Britain prepares for a potential rise in unemployment.

Sarah Williams, a debt counselor who runs the Debt Camel website, said that “a very small number of people” who still need help are facing a “double whammy”, with repayment holidays and the furlough scheme expiring at the same time.

Under measures announced today by UK Finance, those with home loans could be allowed to extend their term, switch to interest-only payments, take more breaks or add any interest incurred over the holiday period to the total. They owe.

Will the new measures affect your credit score?

Borrowers whose payment holidays did not appear on their credit report as a missed payment could see their scores swing from the beginning of next month if they had to turn to the lender for more support.

James Jones, head of consumer affairs at reference agency Experian, confirmed that the new payment deferral will be visible on credit reports. This is Money previously reported that banks turn down borrowers who take vacation mortgages, even if it shouldn’t affect your credit score.

From November, as borrowers pause or reduce their regular payments, lenders will mark this on their credit report, detailing how long it will take.

Lenders will report any monthly payments received based on the original payment. For example, if someone agrees to pay half of their original payments for four months, they will come out of those two payments late, which will be reflected on their credit report.

Jones said: “While it is essential that customers continue to get all the help they need from lenders, it is also important that credit reports reflect the facts. Banks and lenders use this information to make judgments about what credit customers can afford and how likely they are to repay it – which means Accurate credit reports are essential to support responsible lending.

Meanwhile, those with unsecured debts such as credit cards and personal loans can apply to pay a smaller amount each month for a short period of time, agree to a longer-term payment plan if they are in greater financial difficulty, or consider refinancing their outstanding debts.

This leaves those who reach the end of repayment breaks at the mercy of individual lenders.

One man who spoke to This is Money from Southend-on-Sea has to negotiate a payment hold with five credit card providers and two personal loan providers on a monthly basis through December after payment holidays expire at the beginning of this month.

Robert – who asked to change his name – had previously lost his job in February as a result of the pandemic’s impact on Asia and southern Europe.

Many people will find it scary to tell a lender that they can’t make regular payments, but most non-priority lenders should be helpful and freeze interest and not add fees if you can’t make it.

Sarah Williams, Dion Camel

He only received one month’s salary from his severance pay because he had only worked for three months, was not eligible for the furlough program, and had been on job seekers’ allowance for six months.

He currently has a conditional offer of a job, but said he ‘would worry if I didn’t have a positive change of circumstances’, saying the letters he had received from his creditors were ‘very cold’ and that he wasn’t sure anyone would. actually read it.

He said he would have to consider debt solutions such as an Individual Voluntary Arrangement come December if he can’t find a job.

Debt charities Money Advice Trust and StepChange broadly welcomed the proposals but said there was a need for coordination among many creditors to avoid a “lenders lottery” and a “joint approach” between lenders, regulators and government to support them. in financial difficulty.

Williams urged those in trouble to speak to a lender or debt counselor as soon as possible.

‘A lot of people will find it scary to tell a lender they can’t make the regular payments,’ she said, ‘but most non-priority lenders should be helpful and freeze interest and not add fees if you can’t make them.

“If you talk to a debt counselor first, they can help you put together a budget to show to lenders, including how much you can give each lender.”

“Lenders will need to take a more tailored approach to offering solutions that work best for each individual borrower, the broad brush approach is not the answer,” added Andrew Hager, founder of personal finance website Moneycomms.

Robert told This is Money that his creditors acted more responsibly than when he previously ran into financial problems 12 years ago, which he said was “a positive one.”

Hundreds of thousands are still on pay leave

How many holidays?

According to the latest figures from UK Finance, as of October 9, there were:

– 162,000 valid mortgage leave

– 97,300 valid credit card holidays

– 64,400 valid personal loan leave

Although UK Finance figures revealed that only 7 per cent of all breaks given to borrowers since April were still in place as of 9 October, it is likely that those still on leave are those in the most precarious financial position.

And while UK Finance said more than 75 per cent of customers who ended around 4.1m paid holidays had started making payments again, Williams said this meant “a lot of people haven’t”.

Lloyds Banking Group, which also operates Bank of Scotland and Halifax, said in its semi-annual results in July that customers who extended payment holidays for another three months were typically of lower credit quality and tended to have higher average balances and lower credit scores than Customers who have never taken a paid vacation. “

Britain’s biggest banks will start disclosing how many of their retail customers are still postponing payments at the end of September when they report their third-quarter results on Friday.

UK Finance’s figures also do not include the number of repayment holidays granted to a car finance borrower, which along with mortgages are classified as ‘priority’ debt and must be paid off first before any credit cards, personal loans or other debts.

Customers who have sought to extend paid leave typically have lower credit quality and tend to have higher average balances and lower credit scores than customers who have never taken paid leave.

Andrew Hager said that while there were fewer people deferring payments than expected, “there are clearly many people who continue to experience severe financial hardship due to low income or unemployment.”

Surveys from the Office for National Statistics indicated that household finances are under increasing pressure as a result of the coronavirus.

On October 9, it found that 29 percent were using savings to cover their cost of living, 25 percent were unable to save as usual and one in five were borrowing or using credit to cover their costs.

Meanwhile, a third of people said earlier this month they would be unable to pay an unexpected bill of £850. This is up from 26 per cent in mid-June and is at a level last seen during the height of the national lockdown in mid-April.

The Office for National Statistics found that nearly a fifth of people find it difficult or very difficult to pay bills since the pandemic hit the UK, compared to just 8 per cent previously.

Are families’ finances under pressure due to the Corona virus?
week % reported reduced income due to the coronavirus % using savings to cover living costs % Unable to save as normal The percentage of borrowing or using credit to make ends meet
12 – 16 August 59% 18% 25% 15th%
16 – 20 September 65% 29% 29% 19%
September 30 – October 4 63% 29% 25% 18%
Source: National Statistics Office

Separate research by the financial watchdog, the FCA, warns that 31 percent of adults have had their income hit, with household income falling by a quarter on average.

The outlook is not encouraging. The unemployment rate was 1.5 million, or 4.5 percent, at the end of August, while the 227,000 redundancies during the three months between June and August were the most seen since the aftermath of the financial crisis 11 years ago.

Earlier this week, Bank of England policymaker Gertjan Vlegje predicted job losses would be worse than feared, and not all of the two million people currently still out will have jobs to return to.

The number of layoffs between June and August reached an 11-year high as the economic impact of the coronavirus continued to ripple through the UK job market.

The number of layoffs between June and August reached an 11-year high as the economic impact of the coronavirus continued to ripple through the UK job market.

When asked if the FCA and banks could offer more to those still in trouble, Williams said: “I don’t know. Lenders and regulators cannot continue to grant payment deferrals permanently.

But Gareth Shaw, Chief Financial Officer at Consumer Group? , said the regulator ‘ended vital protections such as payment deferrals too soon, and banks could now be overwhelmed with a large number of customers who will be applying for urgent financial assistance in the next few months.

Those able to do so should make their own mortgage, loan or credit card payments, but anyone in financial difficulty should ‘get in touch as soon as possible to discuss the options available, from checking their website’ said Eric Linders of UK Finance. Your lender on the web. with the latest information.

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