Equity Release

Two-fifths of mortgage holiday borrowers would have struggled without payment breaks

Christina Hoghton
Written By:
Christina Hoghton

Younger people and BAME adults have been hit particularly hard by the pandemic

Four in 10 borrowers who took a mortgage payment holiday said they would have struggled a lot if these measures had not been in place, according to a survey by the financial regulator.

Covid-19 has left more than a quarter of UK adults with low financial resilience, the Financial Conduct Authority’s (FCA) financial lives survey found.

And more than half – or 27.7m – of the UK’s adult population are considered in some sense vulnerable, a figure that had increased by 15 per cent between February and October when the second part of the survey was carried out.

Younger people and BAME adults have been hit particularly hard by the pandemic, the survey showed.

The report found that around 3.5 million people in the UK have outstanding mortgage debt at least four times their annual household income, representing a significant increase on the 14 per cent of mortgage holders in 2017.

One in six mortgage holders have taken a payment deferral in the face of the Covid crisis.

Around two thirds of those who took up a mortgage payment deferral feel their lender was sympathetic to their circumstances.

Karen Noye, mortgage adviser at Quilter, said: “Unsurprisingly, adults who were most likely to take mortgage holiday were those who were already over indebted before the pandemic showing that while the pandemic has caused significant issues for many, there is a systemic problem with debt in our society that needs to be addressed at its root.”

It’s feared that more people may suffer in the coming months, as government-backed support such as furlough and mortgage payment holidays, are withdrawn.

Noye added: “The difficulty that lies ahead is not lost on the UK, as 38 per cent of respondents, equating to roughly 19.6 million people, anticipate not being able to pay domestic bills or not being able to keep up with their mortgage, rent or credit and loan commitments over the next six months.

‘Pain not shared equally’

Nisha Arora, director of consumer and retail policy at the FCA, said: “The Financial Lives survey is fundamental to the work we do as a regulator, enabling us to hear directly from consumers across the UK.

“While there are some positives in the data, many of the findings are worrying. Since the start of the pandemic, the number of people experiencing low financial resilience or negative life events has grown.

“The pain is not being shared equally with a higher than average proportion of younger and BAME adults becoming vulnerable since March. It is likely the picture will have got worse since we conducted the survey.”

In October one in three adults said they expected their household income to fall during the next six months, while 25 per cent expected to struggle to make ends meet.

To cope with the hardships about 8.1 million, or 16 per cent, expected to take on more debt.

Vikki Jefferies, proposition director at Primis Mortgage Network, said: “What now needs addressing is the knowledge gap among consumers of the financial solutions that are out there to help – and this is where advisers will come into their own.

“Many borrowers may be more likely to resort to unsecured forms of lending to alleviate the pressure on their finances, for example.

“However, for many, this will not be the best solution over the long-term, so brokers need to play a key role in informing consumers about the alternative solutions that will be better suited to their circumstances.”