On Halloween this year, UK government initiatives that provided financial aid to citizens over the Covid-19 lockdown period will end. As a twisted form of poetic justice becomes reality, this development is likely to cause a scary amount of economic damage in the immediate aftermath. While such measures were brought in to help ease the financial burden of Coronavirus, it now seems all that was achieved was a prolonging effect. It is expected that an economic malaise is imminent with consumer spending – having previously reached an almost pre-lockdown level after restrictions were lifted – projected to fall once again with the UK now staring a recession in its ghoulish face.
What’s changing?
Here is a list of the upcoming changes:
Mortgage payment holiday ends 31st October
Credit files will update reflecting mortgage arrears
Repossessions can commence
Furlough scheme ends 31st October
These changes are likely to result in significant job losses as companies no longer have the financial aid necessary to keep employees on the books. In addition to this, the mortgage repayment holiday ending means nearly 2 million UK homeowners will be required to repay the mortgage bills missed over the 3 or 6 month period for which they used the scheme.
The recovery process
With approximately 1 in 7 UK mortgage payers now facing the same problem of having to pay back months of bills, lenders are offering borrowers three ways to defer their mortgage payments:
Extend the loan period by 3 or 6 months, depending on for how long the borrower used the mortgage holiday scheme
Increase the size of the mortgage payments, ensuring the loan period remains the same length as before
A short-term repayment plan where the borrower pays the full amount of the loan over a period of, for example, 6 months
Not all lenders will offer all borrowers all of these options, so it is critically important to find out from your lender what might be available to you if you used the scheme. With 31st October fast approaching, it’s crucial to do this as soon as you can as lenders may look favourably on those that get in contact early.
Banks will be banks
Although the government offered assurances that credit scores will be unaffected, lenders have become wary of those that took up the option to delay mortgage payments over the lockdown period. Some prospective borrowers are already finding it difficult to secure a new loan. Lenders now want to know – in addition to whether you took a mortgage holiday and what the reasons were for doing so – whether you still work in the industry that required you to take the break.
The shift from lenders primarily asking “How much do you earn?” to “What industry do you work in?” is a chilling reflection of the uncertainty surrounding the current economic climate. Lenders are hesitant because they have no assurances their money will be repaid.
For the little man, this dynamic seems wholly unfavourable. In order to limit any potential damage done, the FCA has instructed lenders to be mindful of the difficult circumstances in which we find ourselves. As Chief Executive Chris Woodward said last week, lenders need to “help borrowers get back on track”.
The frightening end to furloughing
Halloween will also spell the end of the furlough scheme initiated by the government back in March. This has the potential to cause a significant rise in unemployment, as a report by the Federation of Small Businesses (FSB) showed that almost 1 in 4 (23%) companies had already reduced staff numbers between March and July. To compound the problem, the damage was not limited to small businesses. Household names such as Marks & Spencer and John Lewis were forced into taking hundreds of employees off the books in the same period. These figures are expected to rise once the furlough scheme ends on 31st October.
Forward planning
With more and more people facing higher costs and reduced income, it seems the significant financial ramifications of the upcoming changes will primarily fall on already unstable individuals, as banks will seek to protect themselves in this difficult climate so as not to bring about a repeat of the 2008 financial disaster. As previously stated, it is crucial that anyone potentially facing financial danger as a result of the changes scheduled to occur on Halloween seeks expert advice as soon as they can to ensure they get through these difficult times in as smooth a fashion as possible.