1.5m Payment Holidays Have Been Granted by UK Banks
High street banks have granted almost 1.5m payment holidays to customers struggling with credit card and loan repayments due to COVID-19, according to new data.
UK Finance, a banking lobby group, released figures showing that by 21 May, 877,800 credit card accounts had received a payment freeze. By the same date, 608,000 personal loans had also had their monthly repayments paused.
According to Office for National Statistics figures, during the first month of lockdown back in April, almost 20% of people experienced some form of reduction in household income. There was also a 2.1 million increase in the number of unemployment benefit claims - an increase of almost 70%.
The Financial Conduct Authority published guidelines on how payment holidays should be offered for up to 3 months on loans and credit cards, and mortgage payment holidays up until the end of October. So far 1.8m mortgage holidays have been approved.
The latest figures suggest that a relatively low proportion of people have been granted payment holidays. Less than 7% of loan payments have been paused, and less than 2% of credit card accounts have been frozen.
The government furlough scheme for workers could be one potential reason for this, as the scheme is allowing families to maintain an income. However, the number of payment holidays is surging according to UK Finance, with an increase of over 25% from the beginning of May.
Fairer lending to consumers has been promoted by The Fair By Design campaign. The campaign’s head of corporate engagement, Carl Packman, said that struggling households desperately need payment holidays to be extended:
“Banks and their regulator moved exceptionally fast to provide clarity and support to customers during this time but unfortunately we anticipate the situation getting worse before it gets better. So the FCA will need to extend its support package for consumers and ensure against unintended consequences.”
Before the country went into lockdown there had been an increase in the amount of household debt on loans, credit cards, and car finance.
Director of the Centre for Responsible Credit, Damon Gibbons, said that consumers were being afforded more leniency by some lenders than others.
“There’s going to be a lender lottery as a result of all this,” said Gibbons.
“We were in the midst of a growth of household debt problems before the pandemic, and this is going to tip huge numbers of people over the edge, whether it’s living on furlough with 80% of wages, or looking forward to the jobs market shattering. People are going to be in real difficulty.”