The rate of unemployment has reached its highest level in three years, figures released by the Office for National Statistics (ONS) today have revealed. This, coupled with the fact that back in May, research carried out by AJ Bell found that one in five workers in the UK had no emergency cash fund prior to the Covid-19 lockdown in March, along with many workers receiving just 80% of their salary during months on furlough, means that it is likely many people facing redundancy or who are currently out of work will be struggling financially.
Here, we take a look at what financial help is available to those facing redundancy.
Currently, homeowners struggling to make mortgage repayments due to financial difficulties caused by the Coronavirus pandemic have until the end of this month to apply for a mortgage repayment holiday or an extension to their existing mortgage repayment holiday. At the moment, there are no plans to extend the application deadline further, so those who are facing redundancy need to act quickly if they wish to apply for a mortgage repayment holiday, which is normally applied for directly through the lender. While mortgage repayment holidays can provide homeowners struggling to make repayments with some breathing room, mortgage borrowers should be aware that interest continues to be added during the repayment holiday and, as a result, mortgage repayments may increase once the mortgage holiday has ended or the term of the mortgage may be increased to maintain the payments at the same level.
Homeowners who have been rejected for a mortgage repayment holiday or who are reluctant to take a repayment holiday but who are struggling to make repayments should speak to their mortgage lender to discuss alternative options.
One possible alternative is to switch to interest-only repayments for a short period of time, which can save hundreds of pounds in monthly repayments. For example, someone with a £200,000 mortgage over a 25-year term paying an interest rate of 1.70% would currently be paying £818.80 in monthly repayments, whereas switching to interest-only repayments would reduce this to £283.33 – a reduction of £535.47 per month. Borrowers should be aware that by only paying the interest on the mortgage will mean that they are not paying off their mortgage and, as a result, will have to increase repayments when they switch away from an interest-only mortgage or extend the term of their mortgage.
Homeowners should be aware that all of these options require agreement from the existing mortgage lender.
Those with a loan and credit card with a high street bank or building society and who facing redundancy also have until the 31 October to apply for a repayment holiday if they will be unable to make repayments. As with mortgage repayments holidays, the repayment holiday needs to be applied for directly through the lender. In addition to this, other loan companies may offer short-term repayment holidays for those facing redundancy and borrowers should contact the lender to discuss whether this is an option available to them. It should be noted that loan companies are not obliged to accept repayment holiday applications.
Those with debt should contact their lender in the first instance to discuss the options available to them. For example, if they are unable to offer a repayment holiday, they may be able to offer short-term interest-only repayments instead. Borrowers should be aware that it is likely that repayments will increase once the repayment holiday has come to an end and that, as with mortgage repayments, interest will continue to accumulate during the repayment holiday.
Borrowers who are struggling to come to an agreement with their lender or who have unmanageable debt should consider getting advice and support from professional debt advisers such as through Citizen Advice or a free debt charity.
The redundancy pay received depends on a range of factors, such as the length of time employed at a company and age. For more information about redundancy pay, read our article Your redundancy rights – what money are you entitled to if you’re made redundant? . Ideally, those facing redundancy will have money saved in an easy access savings account that can be used to fall back on to help manage everyday costs until they are back in employment again. Generally, it is advised that workers have between three to six months’ expenses saved in an emergency fund. But, as already stated, figures released by AJ Bell back in May found that one in five workers had no emergency fund prior to the Covid-19 lockdown. For those with no emergency savings to fall back on, help is available through Government schemes such as universal credit. The amount of money and benefits available through Universal Credit depends on individual circumstances and more information can be found on the Government’s website .
Since the Coronavirus pandemic began severely impacting the UK economy, insurance companies have withdrawn income protection insurance in the event of redundancy from the market. For those who have an existing income protection policy, they should check their insurance policy to see if they are covered in the event of redundancy.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.