One in 10 Borrowers Still Concerned About Maintaining Repayments Despite Payment Holidays
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One in 10 Borrowers Still Concerned About Maintaining Repayments Despite Payment Holidays

Furlough and forbearance measures helped the UK avoid the spike in loan defaults that were expected at the start of the pandemic, but as they are phased out this year, a recent surge in payment holidays for unsecured loans suggests one in ten borrowers are still concerned about maintaining repayments.

Forbearance in demand

Payment holidays were an effective forbearance measure introduced by the FCA in March 2020 to support borrowers impacted, directly or indirectly, by covid-19. Those struggling to make loan repayments were given the option to defer payments for up to six months.

According to the latest data from the Equifax Market Pulse, mortgage static balances (a proxy for borrowers on forbearance measures) peaked at 18% in June 2020 and are now back to pre-pandemic levels at 4.3%. However, the number of unsecured loans with static balances hit a pandemic high of 10% in March, overtaking peaks in July 2020 (8.5%) and January 2021 (7.7%). This demand has been partly driven by the FCA’s 31 March deadline, after which, the scheme was closed to new applicants, but still suggests one in ten UK borrowers are worried about making repayments.

Arrears under control

Overall, the Government’s support schemes have achieved their purpose. Despite bleak forecasts at the start of the pandemic, the proportion of loans in arrears are actually now lower than they were in 2019. In June 2021, Fixed term (BNPL) and mail order sectors had seen fewer accounts with 3+ missed payments, while second mortgages and hire purchases have seen a slight rise.

Before the pandemic, older borrowers (46+) made up 31% of those in arrears (missed 3+ payments), but this proportion had risen to 34.7% by June 2021. The reasons for the rise aren’t known, but could be a result of higher average incomes making support measures such as furlough (80% of income up to £2,500) less beneficial.

Geographically, London was the only region of the UK to see a significant increase in arrears. The rest of the UK broadly followed a similar pattern of improvement, with Wales, Scotland and the Northeast seeing rates fall below the national average.

Equifax data also shows an encouraging picture of financial vulnerability. Following most economic shocks, a 6-10% increase in the number of people in financially difficult situations is expected. Surprisingly, when comparing pre and post pandemic data (Q1 2020 vs Q1 2021) the number of people with multiple severe long-term financial issues has actually decreased over that period (by 2%).

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.”


  • Francis is a journalist and our lead LatAm correspondent, with a BA in Classical Civilization, he has a specialist interest in North and South America.

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