Coronavirus, finances, payment holidays and tailored support
The coronavirus pandemic has not only caused a shift in our day-to-day lives, it has also shifted the entire financial landscape. For those struggling financially, there is help available. This article explains the support available to you from your lenders.
The latest round of lockdowns across the UK is no doubt going to have an effect on not only our health and mental wellbeing but our financial wellbeing as well. With so many worrying about affording their mortgage or rent, not to mention any other financial commitments we may have.
This guide will tell you what help is available to you and explain how it works.
The coronavirus pandemic has not only caused a shift in our day-to-day lives, it has also shifted the entire financial landscape. Last March (2020) the Bank of England reduced the UK base rate twice in just over a weeks timescale. We also saw lenders completely reduce the products they had to offer as well as them scrambling to support customers who’d experienced adverse economic conditions such as reduced, or loss of, income. Payment holidays became a staple offering on loans, mortgages and credit cards and there was widespread support for those who had gone overdrawn.
Now in 2021, the main payment holiday help schemes have become more limited, and those that used that support last year are being transferred onto “tailored” help.
Getting support from your lender
If you’re struggling with payments on your mortgage, for a personal loan, motor finance or another form of credit due to the impacts of the coronavirus pandemic, the Financial Conduct Authority (FCA), who regulates the industry, have said lenders should provide you with support.
This support should be offered to you whether you’re struggling for the first time, if you’ve already received support or the support you have already received is coming to an end.
Contact your lender
If you’re struggling financially or finding it difficult to manage your finances, you must contact your lender as soon as possible. Contact details should be readily available to you via your lenders website and their communications with you.
If you have a general question about the support available, you should always check their website first, many lenders now have dedicated pages regarding the pandemic and their commitment to customers.
Coming to an agreement with your lender
As per FCA regulations and guidelines, before agreeing to any support, your lender should be providing you with the right information to allow you to make an informed decision.
This may be provided in the form of a weblink, where you can learn about the different options of support available to you. When discussing your options with your lender it’s important that you are open and honest about your current financial situation so that you can agree on a support option that is right for you.
Partial or full payment holidays may be an option for some credit products, suchs as mortgages, credit card debt, loans, or motor finance. However, it is important to keep in mind that payment holidays can increase the amount you repay in the longer term.
Payment holidays are an agreed period of time with your lender where you either don’t make any payments, or in the case of a partial payment holiday make reduced payments.
These payment holidays are designed to provide you support if you are struggling to make payments due to the coronavirus pandemic.
It is important to understand the following:
When you’re payment holiday ends, you’ll still have to pay back the amount owed
That taking a payment holiday will likely mean you end up paying more in the long term (this is because you’ll still be charged interest during the payment holiday on the amount owed)
If your financial circumstances do improve during your payment holiday, you can choose to resume your payments sooner. This will mean you can avoid any extra costs.
Payment holidays - the facts
those who have not yet had a payment holiday, will be able to request one up until 31 March 2021. Typically, payment holidays are given for a three-month period when you first apply. You can resume payments sooner if you are able to do so, or have the period extended. Payment holidays are limited to a maximum of six months.
those who are already on a payment holiday, or have had a payment holiday will be able to extend to a total of six months. If up until this point, you’ve only had a 3 month payment holiday, if you’re still struggling with payments you can apply for an extension. The extended payment holiday doesn’t have to be consecutive either. If you’ve resumed your payments since your initial payment holiday, but due to recent lockdowns have found yourself struggling again, you are able to apply for a further payment holiday. So long as you haven’t already reached the six month limit.
if your first payment holiday takes you beyond 31 March 2021, you will be able to extend it if needed. The 31st is only the deadline to apply for new payment holidays. If you are still on your first, and it runs past that deadline, you will have the option to extend it. However, there is a second date of 31 July 2021 you need to be aware of - by this day all payment deferrals need to end. This means, if you’re currently in financial trouble and you feel you’ll require the full 6 months, you’ll need to apply for a payment holiday before your February payment is due.
interest will still be charged during your payment holiday. Due to this, the amount you end up repaying will likely be more overall. Meaning you should only take the option of a payment holiday if you need to, and for only as long as you need it. If you can continue your payments you should do so.
ou don’t have to take a full payment holiday, partial payment holidays are available. If you can afford to make a lesser payment toward your mortgage, a partial payment holiday is better. Interest will still be charged, but as you're making some form of payment less interest will accumulate. The deadline to apply for a partial payment holiday is still 31 March 2021.
’tailored support’ will be offered if you’ve already had a six month payment holiday and you still need support.
the first six months of payment holidays will not show on your credit file as missed payments, however, lenders can still find out about them. When a payment holiday has been agreed with your lender, typically it’ll be reported as your payment has been made. However, lenders may still be able to determine that you’ve had a payment holiday. For instance. They’ll be able to see that your mortgage balance hasn’t reduced during the period and they can use that information to inform their decision when you apply for credit.
FOR MORTGAGES - lenders won’t be able to repossess your home for non-payment until 31 January, at least. There are exceptions to this, if your home is already empty or you have agreed to the repossession it can happen before that date. Lenders can also apply for possession before 31 January, but they won’t be able to enforce it until February at the earliest.
Should you take a payment holiday?
During these turbulent times, it may seem like a no-brainer to take a payment holiday to ease the pressure of your financial commitments. But it’s a much more complex decision, while a payment holiday can give you some needed respite, and it is a better option than missing payments without prior agreement, you need to seriously consider the consequences of taking a payment holiday.
You will still be charged interest and that adds up. The interest charged on your mortgage won’t also experience a holiday, during your payment holiday the interest is still accumulating. Meaning, your monthly payments after your payment holiday will likely increase. That’s because the repayments you make every month lower the amount owed and reduce the interest as a result.
It may impact your ability to secure credit in the future. While the FCA and Chancellor have been keen to note that payment holidays wouldn’t be reported on your credit file, it’s important to understand that lenders will still be able to find out if you took one.
They can do this by looking at application forms, through Open Banking, or just by reviewing your payment history. So, a payment holiday can still result in a negative assessment by future lenders.
So to answer the question simply, you should only take a payment holiday if you really need it.
Applying for a payment holiday
If you’ve come to the conclusion that a payment holiday is the right form of support for you, you can usually apply online. Most lenders have now created dedicated portals (though some have set-up phone helplines).
If you’re eligible for a payment holiday, lenders can only agree to a maximum period of three months. However, they can agree to extensions to the payment holiday up to a total of six months. But note, this six month period does include any payment holidays you may have previously taken.
Your lender may also determine that a payment holiday isn’t in your best interest. Should this be the case, they should instead offer you tailored support which will suit your individual circumstances.
If you are going to apply for a payment holiday, you need to do so by 31 March 2021.
If you’re newly impacted by the coronavirus pandemic and you feel you’ll need the full 6 month payment holiday, you must apply before your February payment is due. Whether that’s for your mortgage, credit card or debts.
If you’ve already had a payment holiday, but haven’t reached the six month limit, you may still be able to apply for another payment holiday. However, it cannot exceed the six months allowed in total (including holiday previously taken).
Remember, if your existing payment holiday takes you past the 31 March 2021 deadline, you are able to request an extension after that date. However, do keep in mind that all payment deferrals need to end 31 July 2021.
In the event you’re not eligible for a payment holiday, your lender should offer you access to tailored support. Tailored support will take your individual circumstances into consideration, giving you time to get your finances back on track.
When accessing tailored support, your lender should;
- work with you to provide you with the necessary support before you miss a payment
- be flexible in their approach and use a range of short and longer-term options to support you – this could include a period of no payments or reduced payments
- Allow you the time to repay what you owe while not pressuring you into repaying your debt in an unreasonably short period of time.
- Point you to money guidance or debt help, and allow you to access debt advice before making an agreement on the support you require
- Where reasonable and appropriate , create a sustainable repayment plan that is affordable and takes into account your wider financial circumstances (i.e. factors in any other debts and essential expenses such as the cost of living).
- Prevent your debt from snowballing once a repayment plan has been agreed. This can be done by either suspending, reducing, waiving or cancelling any interest, fees or other charges.
The options given to you will depend on your personal circumstances. You lender will assess your essential living expenses when assessing the options available to provide you with tailored support. Such living expenses could include:
- mortgage payments, rent or council tax
- Reasonable food, clothing, health care and travel costs
- Any other costs, where non-payment could result in the loss of your home, essential goods or services
If you do require tailored support from your lender, this may be reflected on your credit profile, whether you required tailored support at the end of a payment holiday or you needed it in the first instance instead of a payment holiday.
By appearing on your credit profile it gives lenders an accurate picture of your financial circumstances and reduces the risk posed of unaffordable lending.
Your lender should be transparent with you about what the tailored support you receive could mean for your credit profile.