Borrower ‘confusion’ about payment holidays
More than a third of those who had taken a payment holiday didn’t realise that lenders were allowed to charge interest on the outstanding balances or when this would be payable.
One in seven (15%) respondents had taken at least one payment holiday on a mortgage, loan or other financial agreement. Two in 10 had been forced to use their overdraft facility during lockdown to make ends meet – and of those, just under half had strayed in to the ‘charging zone’ of £500.
Resolver found that four in 10 people who had taken a payment holiday didn’t have all their options explained to them. More than a third of people were concerned about paying back their debts.
To help people face the financial challenges posed by the pandemic, the Financial Conduct Authority (FCA) introduced rules for lenders so they could offer people ‘holidays’ from mortgage, loan, credit and other financial debts.
Mortgage lenders will allow borrowers who are concerned about being able to meet their mortgage repayments to take up to six months of payment holidays. Mortgage holders have until 31 March 2021 to apply for a payment holiday.
Borrowers can also ask for a payment freeze of up to three months on loans and credit cards. Alternatively, customers will be able to pay a token amount.
Credit score confusion
However, many lenders have been reluctant to confirm if their customer’s credit scores or ‘lending status’ were being affected as a result of taking a payment holiday.
Alex Neill, Resolver CEO, said: “After a year of turmoil and uncertainty, the option to take a break from financial commitments has undoubtedly been essential for struggling households around the UK. But the idea that they’re some sort of no-strings ‘holiday’ is simply not the case.
“Resolver’s survey reveals that many people simply did not understand the full impact of taking a payment holiday on their finances – and have not received enough information or clear options on what will happen next if they continue to struggle.
“With the impact of coronavirus continuing and 1.7 million people out of work, it’s clear lenders will need to do more to provide support and improve communications to those that require much needed relief in the face of financial difficulty, helping them to budget and plan for any longer-term issues.”