Furlough fears sparked as Britons load up on cheap mortgage debt

FURLOUGH fears have been sparked amongst Britons as many have been found to be loading up on debts.

Martin Lewis explains mortgage payment holidays

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Furlough has provided individuals with significant assistance throughout the ongoing pandemic, but the measure is set to come to a close. With the Government walking back its formal support, however, concerns have been raised about the consequences, particularly for those taking out loans – such as mortgages. It comes as the number of mortgages offered to higher-risk borrowers has risen to a five-year peak, according to a study from international audit, tax and advisory firm Mazars.

The figures have shown mortgages to individuals borrowing at four times or more of their income increased to 12.6 percent of all mortgages in the first quarter of 2021, up from nine percent five years ago.

But this has led to further worries about what will happen should people lose their jobs when the furlough scheme ends.

Paul Rouse, Partner of Mazars, added: “Some borrowers, notably first-time buyers with small deposits may have overextended themselves. If the exit from the lockdown is bumpier than expected, this could lead to significant job losses.

“It would be miraculous if such a huge blow to the economy can be absorbed without higher levels of personal insolvency.”

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furlough mortgage payment holiday

Furlough fears sparked as Britons load up on cheap mortgage debt (Image: Getty)

Those who are struggling to meet their mortgage payments are encouraged to speak to their lender.

These professionals are likely to be able to provide tailored advice to suit an individual’s circumstances

Research has found furlough and forbearance measures helped the UK avoid the spike in loan defaults which were almost seen as a foregone conclusion at the start of the pandemic.

However, as the now-familiar forms of support begin to be phased out, a recent surge in payment holidays has been recorded.


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The payment breaks were for unsecured loans, with the latest data suggesting one in ten borrowers are still concerned about maintaining repayments.

First introduced back in March 2020, coronavirus payment holidays served as an effective forbearance measure.

Those who knew, or suspected, they would struggle financially due to the pandemic were permitted to request a break from significant financial responsibilities in order to get back on their feet.

For many, these have been available for a six month period if individuals were directly or indirectly impacted by COVID-19.

But it is mortgage payment holidays which have piqued the interest of analysts and led to concern about the consequences of furlough.

Data from the Equifax Market Pulse showed mortgage static balances – which are considered a proxy for borrowers on forbearance measures – peaked at 18 percent in June 2020.

furlough end date

Furlough: The scheme is gradually ending (Image: EXPRESS)

While they are now back to pre-pandemic levels of 4.3 percent, the number of unsecured loans with static balances hit a pandemic high of 10 percent in March.

This overtook increases in July 2020 – recorded at 8.5 percent, and 7.7 percent in January 2021.

It is thought this demand has been driven by the payment holiday deadline as imposed by the Financial Conduct Authority (FCA) – March 31, 2021.

The data suggests one in 10 UK borrowers remain worried about making repayments in the future.

This does not bode well for those concerned, especially as formal methods of support are removed in the future.

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It remains to be seen how this so-called “cliff edge” will impact Britons, however, fears of financial instability are increasing.

Paul Heywood, Chief Data and Analytics Officer at Equifax UK, said: “As the economy re-opens and many of the pandemic’s emergency support measures are phased out, it’s important we recognise how successful they have been in protecting the financially vulnerable in the UK.

“There are still a few warning lights on the dashboard, and this spike in borrowers requesting payment holidays is a sign that we are not out of the woods yet, but early indications tell us that we have avoided a devastating spike in people defaulting on loans.

“For lenders, identifying people in, or about to enter, financial difficulty is going to be a key theme of 2021, especially as Government support is curtailed.

“While for borrowers, the important thing for people to remember is that the end of these forbearance measures does not mean that there is no support available.

“A range of tailored support measures have been introduced in the last year, and guidance is readily available for those that need it.”

Harry Byrne

Harry Byrne

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