As England enters its third lockdown and Scotland, Northern Ireland and Wales facing tougher restrictions, we’ve looked at the help available to those facing financial difficulties during the latest lockdowns.
The furlough scheme is set to end at the end of April 2021. Under the scheme, employees placed on leave will get up to 80% of their salary, up to a maximum of £2,500 a month. Although the furlough scheme is usually used to help those who cannot do their jobs due to the pandemic or lockdown, it can be used to support those who have caring responsibilities, including parents who need to look after children. This means that parents struggling to work and look after their children due to school closures can request to be furloughed, but they should keep in mind that employers are not obliged to furlough their employees for this reason.
Those who have been furloughed, or who are considering requesting to be furloughed, should be aware that it may impact their finances beyond a reduction in salary. For example, some mortgage lenders may not be willing to lend to those who have been made furloughed.
Back in November, mortgage repayment holidays were extended by a further six months. This means that, at the time of writing, mortgage borrowers who are struggling to keep up with repayments have until the 31 March 2021 to apply for a repayment holiday. The application must be made through the mortgage lender and borrowers can apply for a holiday for up to six months in total. This means that those who have already used up their six-month repayment holiday cannot apply for another one, but they should contact their mortgage lender to see if they can come to another arrangement.
Mortgage borrowers considering a repayment holiday should be aware that interest will continue to be added to the mortgage loan during the holiday period. This means that when the repayment holiday ends, the borrower will likely have to make higher monthly repayments or extend their mortgage term.
Other options available to mortgage borrowers struggling to keep up with mortgage repayments include switching to an interest-only mortgage or increasing the mortgage term. Switching to an interest-only mortgage will likely significantly reduce monthly repayments, but mortgage borrowers who choose this option should be aware that they are not paying off their mortgage loan and just the interest, so should switch back to a repayment mortgage as soon as they are able. Those considering extending their mortgage term should keep in mind that this may mean that their mortgage repayments may continue after they have retired and they may want to consider making overpayments on their mortgage when they are in a better financial position to reduce the amount they have to repay in retirement.
It should be noted that while the initial six-month repayment holiday will not be reported as missed payments on the borrower’s credit file, lenders can still find out about them. As well as this, any support outside the six-month repayment holiday will likely be noted on credit files.
During last November, the Financial Conduct Authority (FCA) extended the repayment holidays available on loans and credit cards until the 31 March 2021. Borrowers who have not yet applied for a loan or credit card repayment holiday can request one for up to three months. Those that have already had a repayment holiday can apply to extend it by a further three months. This means that borrowers can apply for a six-month payment holiday in total. Borrowers who have already had the maximum six-month repayment holiday, should contact their lender to discuss their options and be provided with tailored support. Those taking a repayment holiday need to keep in mind that interest will continue to be added to the debt during the holiday, as such they will likely have to make higher repayments when the holiday comes to an end or will need to extend the term of the debt if possible.
Borrowers who have used the full six-month repayment holiday entitlement have a number of options available. Their lender may allow them to defer repayments for longer, but again, borrowers should be aware that interest will continue to be added to the debt during this time. Another option is to make reduced repayments, but this is normally only for a short period. Lenders may waive or reduce the interest charged on the loan, and this will reduce the cost of repayments and help to clear the debt sooner. Some lenders may work with the borrower to create a repayment plan and in this situation, the lender needs to ensure that the amount owed does not rise out of control and, as such, may again cut or waive the interest charged.
Although the initial six-month repayment holiday will not be noted on the borrower’s credit file, they should be aware that any additional support will likely be noted and could impact their credit scores.
If you are struggling financially or need help and support with debt management you can get advice from professional organisations such as Citizen Advice or free debt charities.
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