May 22, 2022

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Payment holidays for unsecured loans hit 12-month high in March

Payment holidays for unsecured personal loans spiked in March, ahead of the deadline for new applicants at the end of that month.

Data from credit reporting agency Equifax showed that 10 per cent of unsecured consumer loans had static balances in March, indicating that one in 10 borrowers had opted to freeze repayments ahead of the Financial Conduct Authority’s 31 March deadline – after which, the scheme was closed to new applications.

This overtook past peaks in July 2020 (8.5 per cent) and January 2021 (7.7 per cent)

Read more: FCA confirms that consumer repossessions will resume as a last resort

The City watchdog introduced payment holidays as a forbearance measure in May 2020 to support borrowers impacted by the pandemic. Those struggling to make loan repayments were given the option to defer payments for up to six months.

In contrast, the Equifax data showed that mortgage static balances – which indicate how many borrowers are using forbearance measures – peaked at 18 per cent in June 2020 and are now back to pre-pandemic levels at 4.3 per cent.

Read more: FCA updates guidance for struggling consumer credit customers

The government introduced a range of measures to support borrowers during the pandemic, which have prevented high numbers of loan defaults.

Equifax found that 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.

“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,” said Paul Heywood, chief data and analytics officer at Equifax UK.

Read more: City regulator vows to take action on consumer lenders ignoring forbearance guidance

“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.”