The financial effects of the pandemic have been severe on many of us, whether we’re acting as companies, landlords or individuals. One lifeline has been the ability to take “payment holidays” in the repayment of mortgages, loans or debts. This has been invaluable — but is it really the straightforward benefit it seems?
Recent research by Resolver suggests it may not be.
Early in the pandemic, the Financial Conduct Authority (FCA) issued rules that would allow lenders to offer “holidays” from repaying a wide range of debts. This has been taken up by both businesses and private individuals who have felt hard pressed to meet all their obligations while coping with reduced income.
According to Resolver’s survey, 15% of those questioned had taken at least one payment holiday since the new rules were introduced, with some taking multiple holidays. The extent of the pressure can be illustrated by the finding that around 20% of respondents had copied by making use of overdraft facilities.
The Implications of Payment Holidays
This may seem well and good, but it seems that 40% of those who’d taken advantage of the payment holiday option hadn’t received a full explanation from the lender of what was involved. In particular, many lenders seem not to have explained that they might impose extra interest to make up for the holiday.
This doesn’t seem to be the only omission in the explanations. Many respondents also reported that lenders seemed unwilling to clarify whether the payment holiday would affect their credit rating, which could seriously impact their ability to borrow in the future.
The Need for Clarity
There’s no doubt that payment holidays have been valuable for those struggling to survive, and it may well be that some would have considered it worthwhile to take on extra interest and compromise their future borrowing ability for the immediate benefit. However, it’s vital that they have the full facts, allowing them to plan for their future.
Alex Neill, CEO of Resolver, points out that “the option to take a break from financial commitments has undoubtedly been essential for struggling households around the UK. But the idea that they’re some sort of no-strings ‘holiday’ is simply not the case.” He adds that “it’s clear lenders will need to do more to provide support and improve communications to those that require much needed relief in the face of financial difficulty, helping them to budget and plan for any longer-term issues.”
If you’ve been affected by not being given the full facts about a payment holiday, you’re welcome to give me a call.