Borrowers have been offered “unprecedented” support by the banking and finance industry during the coronavirus lockdown, with millions of people taking up payment holidays and interest-free overdrafts.
Figures from June show 1.9 million mortgage payment deferrals have been offered to customers, equalling one in six mortgages in the UK.
Members of trade association UK Finance have also offered 27 million interest-free overdrafts, provided 961,700 payment deferrals on credit cards and 688,900 payment deferrals on personal loans.
People can ask their bank or building society for a temporary interest-free overdraft buffer of up to £500. In some cases, it may be given automatically, depending on the provider.
1.9 million mortgage payment deferrals have been offered to customers impacted by #Covid19 in the three months since the mortgage payment holidays support scheme was launched, UK Finance revealed.— UK Finance (@UKFtweets) June 19, 2020
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A spokeswoman for UK Finance said: “Since the beginning of the crisis the banking and finance industry’s core focus has been implementing a plan to get Britain through these tough times.
“The industry has provided unprecedented support to both customers and businesses, and will continue to help those who need it as the crisis continues.”
Gareth Shaw, head of money at Which?, said: “The huge number of payment holidays taken highlights the scale of the financial pressure people in this country are facing, and while this immediate help is welcome, the regulator and industry must ensure that customers who struggle once this relief comes to an end are given the support they need.
“Consumers should also think very carefully before taking a payment holiday as it will likely increase the overall amount of money they will need to repay – so people should try and continue making payments as normal if they possibly can.”
Borrowers looking for a new mortgage deal may find that their choice of home loans has shrunk during the lockdown, particularly if they are a first-time buyer.
With physical property valuations having been difficult over the past few months, and concerns about possible house price falls, some lenders have become more cautious about offering mortgages to borrowers with very low deposits.
Across all LTV (loan-to-value brackets), the number of deals available has plunged from close to 5,000 (4,969) at the start of 2020 to 2,748 by the end of last week, according to analysis by Moneyfacts.co.uk.
By June 26, there were just 14 deals available for borrowers with a 5% deposit. This compares with 386 in January.
For people with a 10% deposit, Moneyfacts found 72 mortgage deals.
This is around a tenth of the 751 10% deposit deals up for grabs at the start of 2020.
Eleanor Williams, a finance expert at Moneyfacts.co.uk, said there has been an “overwhelming” level of demand for low-deposit mortgages, leading to some lenders who had relaunched offerings needing to pull them back to manage their workload.
She said: “The potential for negative equity issues should house prices slump is now also a spectre. This will be especially disappointing to first-time buyers.”
While payment holidays will give borrowers some temporary breathing space, the Government-backed Money and Pensions Service has launched a free tool on its website to help those hit financially by coronavirus to get back on their feet in the longer term.
It is available on the on the Money Advice Service website at www.moneyadviceservice.org.uk/en/tools/money-navigator-tool.
The tool will help people dealing with complex financial situations who may find it difficult to know where to start, such as those facing job loss, the self-employed whose work has dried up, and people who have had a temporary pay cut needing help to get back on track.
Eileen Pevreall, digital, marketing and IT director at the Money and Pensions Service, said: “It’s really important that people know they are not alone in this.
“By spending as little as 30 seconds filling out some details on our money navigator tool, people can receive tailored guidance that will help them understand what they need to prioritise, what they could be entitled to and which organisations they can go to for immediate support.
“Seeking support for money problems now will help many people avoid bigger debt problems later on.”