Payment holidays hit pandemic peak in March

Payment holidays were introduced by the Financial Conduct Authority (FCA) in March 2020 to support borrowers impacted, directly or indirectly, by Covid-19. Those struggling to make loan repayments were given the option to defer payments for up to six months.

The latest data from the consumer reporting agency shows that mortgage static balances peaked at 18% in June 2020, and are now back to pre-pandemic levels at 4.3%. However, the number of unsecured loans with static balances hit a pandemic high of 10% in March, overtaking peaks in July 2020 of 8.5% and January 2021 of 7.7%.

This demand has been partly driven by the FCA’s 31 March deadline, after which the scheme was closed to new applicants. But it still suggests one in 10 UK borrowers are worried about making repayments.

Commenting on the research, Equifax UK’s chief data and analytics officer Paul Heywood, said: “As the economy re-opens and many of the pandemic’s emergency support measures are phased out, it’s important we recognise how successful they have been in protecting the financially vulnerable in the UK.

“There are still a few warning lights on the dashboard, and this spike in borrowers requesting payment holidays is a sign that we are not out of the woods yet, but early indications tell us that we have avoided a devastating spike in people defaulting on loans.

“For lenders, identifying people in, or about to enter, financial difficulty is going to be a key theme of 2021, especially as government support is curtailed. While for borrowers, the important thing for people to remember is that the end of these forbearance measures does not mean that there is no support available. A range of tailored support measures have been introduced in the last year, and guidance is readily available for those that need it.”

Overall, Equifax analysts believe the government’s support schemes have achieved their purpose. And, despite the bleak forecasts at the start of the pandemic, the proportion of loans in arrears are now lower than they were in 2019.

In June 2021, fixed term buy now, pay later and mail order sectors had seen fewer accounts with three or more missed payments, while second mortgages and hire purchases have seen a slight rise.

The proportion of borrowers in arrears that are aged 46 and older - meanwhile - has gone up from 31% to 34.7% by June 2021. The researchers say the reasons for the rise aren’t known, but could be a result of higher average incomes making support measures such as furlough less beneficial.

Regionally, London was the only place in the UK to see a significant increase in arrears. The rest of the country broadly followed a similar pattern of improvement, with Wales, Scotland and the north-east seeing rates fall below the national average.

Equifax data also shows an encouraging picture of financial vulnerability. Following most economic shocks, a six to 10% increase in the number of people in financially difficult situations is expected. However, when comparing pre and post pandemic data the number of people with multiple severe long-term financial issues has actually decreased over that period by 2%.