The havoc being wreaked by the Coronavirus is not being contained within the walls of hospitals or even with the walls of people’s homes. It’s spreading into all aspects of life in the UK and hurting people emotionally and financially even if it is not impacting them physically. While there is little the government can do about the virus itself, at least for the time being, it is trying to help people manage their finances during this difficult time and, in particular, to allow them to stay in their own homes.
Help for renters
As of 26th March all proceedings for, and enforcement of, possession orders has been suspended for a period of 90 days. Also since 26th March landlords have been obliged to provide tenants with three months’ notice in advance of starting eviction proceedings. This measure is due to last until 30th September. Both measures could potentially be extended if necessary. Landlords themselves can apply for a payment holiday on their mortgage in the same way as people with residential mortgages.
Help for homeowners with mortgages
The Bank of England cut interest rates on 11th March (from 0.75% to 0.25%) and then again on 19th March (from 0.25% to 0.1%). This may not be great news for savers, but it could help borrowers who can “just about” make ends meet.
Borrowers who have been able to make ends meet (i.e. who are up-to-date with their payments) but who have experienced a loss of income due to the Coronavirus, can contact their lender and request a payment holiday of up to three months. They will need to self-certify that their request is due to being impacted by the Coronavirus.
Help for borrowers
At the moment, help for borrowers is largely being provided by the lender themselves, which means it’s variable depending on what product you have and with which lender. The Financial Conduct Authority (FCA) is, however, attempting to bring some level of standardization to what is on offer. They have contacted lenders with the following suggested changes:
Customers who have already been financially affected by the coronavirus should be able to use arranged overdrafts on an interest-free basis for up to three months and all overdraft customers should be left no worse off than they would have been prior to the recent changes made to overdraft pricing.
Customers facing financial difficulties as a result of coronavirus should be offered a payment holiday for loans and credit cards. This should last for up to three months.
Customers who access these temporary measures should not see their credit rating adversely impacted.
While the FCA’s list is phrased as “proposals”, it’s rather hard to see how lenders could refuse, particularly since they could probably take it as read that these proposals could be turned into emergency legislation if they did. They could also reasonably expect a sharp backlash against their business given that the industry benefited from a taxpayer-funded bailout in 2008.
That said, the FCA’s proposals, while undeniably welcome, do raise further questions, particularly with regard to those in persistent debt. The FCA has already advised that credit card lenders should refrain from suspending the cards of people who’ve been in persistent debt for more than 36 months, which, in principle, offers them a lifeline. In practice, however, it could lead to them having to pay back even more interest, thus placing them in an even worse position further down the line.
Similarly, if people in persistent debt take payment holidays, but the interest continues to be applied to their account, then they could also end up substantially worse off, especially if they are near their credit limit and the interest pushes them over it so that further fees are applied, if not immediately, then later on.
The FCA does not regulate some forms of buy to let mortgages
Your property may be repossessed if you do not keep up repayments on your mortgage