As the UK copes with week one of the Covid-19 lockdown, many consumers will struggle with their finances over the coming weeks and months. To try and help ease the financial pressure the new restrictions will have on personal finances, we’ve looked at how consumers can prepare for the next few months, along with the financial help and support available from the Government and banks.
The Covid-19 outbreak has resulted in the Government making the unprecedented move to order non-essential workers to remain in their homes. This has resulted in many employees, business owners and those who are self-employed not being able to work and, as a result, losing their source of income. The Government has set out measures to help employees and business owners financially during the lockdown and has stated that today it will announce financial help for those who are self-employed.
For those who have lost their income due to the Covid-19, it is essential that they find out what financial assistance they are entitled to.
For consumers, the Government has pledged to pay 80% of wages, up to £2,500 per month, of employees who are unable to work due to the Covid-19 outbreak. For those who are unemployed, the Government stated that it will increase the Universal Credit standard allowance and Working Tax Credit by £1,000 for the next 12 months. In addition to this, for those who have to take time off work due to Covid-19, the Government announced earlier this month that Statutory Sick Pay, which pays £94.25 per week, can be paid from the first day the person has to take sick-leave.
A major financial concern for many during this time is how they are going to pay their debts. For many, their biggest debt is their mortgage. The Government has announced that homeowners will be entitled to a three-month mortgage repayment holiday if they cannot pay their mortgage during this time. While this is welcome news for many struggling to pay their mortgage, homeowners should consider carefully if this is the right option for them. There are several other options available to those who are finding it difficult to pay their mortgage right now, which we highlighted in our previous article What to do if you cannot pay your mortgage due to the Covid-19 outbreak. It is essential that homeowners who are struggling financially should not ignore their situation and homeowners who are unable to pay their mortgage should contact their mortgage provider as early as possible to discuss their options.
For those with credit card debt, considering transferring their balance to a 0% balance transfer credit card with a long interest-free period might be a good option to help reduce their credit card debt. Saying that, borrowers should keep in mind they will have to make the minimum monthly repayments and should ideally aim to clear the debt before the interest-free period ends. Credit card borrowers who are considered to be in persistent debt, which is those in a cycle of debt for at least three years, will not have their cards suspended until 1 October 2020. Originally, as part of the Financial Conduct Authority’s (FCA) credit card persistent debt rules, banks were able to start suspending customers’ credit cards this spring if they had ignored communication about their debt. The FCA decided to suspend this rule until the autumn to help consumers manage their finances during the Covid-19 outbreak.
Those who are unable to meet loan repayments should contact their loan company to discuss their situation and any possible options. Some loan companies may be able to offer repayment holidays, but unlike with mortgages, this is not something the Government has guaranteed. Those who have spoken to their loan company and who are still unable to meet their loan repayments should contact an organisation such as Citizen Advice or a free debt charity, to discuss what other options are available.
Although it is never advisable to borrow money to pay for everyday essentials, realistically many consumers will have little choice over the next few weeks and months. Saying this, even in these circumstances, borrowing money should only be considered by those who have little debt and who are confident that they will be able to repay the money that they borrow.
The easiest way for many to borrow money is through their existing arranged overdraft. Barclays Bank has announced that it is waiving interest on all authorised overdrafts from 27 March to the 30 April 2020. While Lloyds, Halifax and Bank of Scotland have stated that they are automatically offering interest-free rates on overdraft borrowing of up to £300, which lasts for a three-month period and ends on the 6 July 2020. HSBC has also stated that its customers will be able to borrow up to £300 on their overdraft without paying interest – this was introduced on the 26 March 2020 and lasts for three months.
Another borrowing option available to consumers is a 0% purchase credit card. The longest interest-free repayment period on a 0% purchase credit card currently stands at 27 months, which is being offered by Sainsbury’s Bank’s Dual Offer Credit Card Mastercard and Barclaycard’s Platinum All-Rounder Visa. Consumers should be aware, however, that the interest-free period on making purchases is normally limited to 56 days.
Consumers who are considering taking out a loan to help meet costs over the next few months should carefully consider whether they will be able to afford the repayments. In addition to this, borrowers should be aware that the advertised APR might not be the rate that they are offered by the lender, as credit scores will have an impact on this. As such, borrowers should ensure that they are fully aware of the rate they will be charged before taking out the loan.
Consumers with money saved in an easy access account will have no problems withdrawing money from their accounts as long as there are no withdrawal restrictions. However, with fixed rate bonds and ISAs usually offering the highest savings rates, many savers will have the majority of their savings locked into a fixed term product. While some fixed term accounts and ISAs allow earlier access, subject to a penalty, a number of banks are allowing savers to withdraw funds from fixed accounts without penalty at this time. For those who urgently need to access savings in a fixed term account or ISA, it is worth contacting their savings provider to see if accessing the funds is a possibility. At the moment, the banks shown below have stated that they will allow penalty-free access to savings in fixed accounts:
In addition to these banks, others are in the process of implementing new rules so savers may want to contact their bank or building society to see if they can access their savings without penalty.
A Government announcement last week stated that no one renting can be evicted from their property for at least three months. In additions to this, residential buy-to-let landlords have been given the ability to apply for a three-month mortgage repayment holiday for tenants who cannot pay their rent due to Covid-19. As such, renters who are currently unable to pay their rent should speak to their landlord and come to an arrangement that will enable them to defer payments for a maximum of three months.
While this does not guarantee renters a three-month break from paying rent, it should ensure that renters have some protection if they cannot pay their rent.
For consumers having to meet everyday bills such as gas and electricity and grocery shopping, this should be prioritised within their monthly budget. For those unable to afford these bills, contacting the providers to discuss options could result in a more affordable repayment plan until the crisis is over. As with debt, if essential bills cannot be paid, it is vital that providers are contacted as early as possible rather than missing payments, as missed payments will have a negative impact on credit scores and could lead to legal action being initiated.
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.