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The UK economy and individual households continue to wrestle with the fallout of COVID-19 and various national and local lockdowns – even as possible vaccines have been announced by Pfiser, Moderna and AstraZeneca. The government has introduced many measures throughout 2020 in an attempt to support workers, homeowners and businesses. Yet these are numerous and have been subject to several changes, leaving many people confused as to which are still in place and how they can leverage those available.
In this article, our financial planning team at Cedar House offers an update on payment holidays and other support measures on offer at the time of writing in late November 2020. We hope you find this content helpful, and invite you to contact our team here at Cedar House for more information or to access personalised financial advice:
020 8366 4400 or enquiries@cedarhfs.co.uk
Renewal of holiday schemes
The 31st of October was set to be an important date as it originally marked the expiration of mortgage, loan and credit card schemes. Since the initial UK lockdown and “Covid budget” in March 2020, millions of UK homeowners had been able to access mortgage holidays if they were unable to keep up with their payments due to the pandemic. Many customers were also able to access temporary overdraft measures (interest-free), whilst 100,000 credit card payment holidays – and 60,000 nonpermanent freezes on personal loans – were set in place.
For many people, the good news is that just hours before this deadline was set to expire, the UK government announced an extension to the mortgage payment holiday. Homeowners can now request a payment holiday up to the 31st March 2020. Loan and credit card borrowers may now also request an extension. As financial planners, we want to urge readers to consider that this is an important window of opportunity for your wealth and household finances, explained below.
Addressing Covid-related debt in financial planning
It is common knowledge that the pandemic, lockdown and resulting impact on employers has left many people furloughed or out of work in 2020. Sadly, in many cases this has led to higher financial pressure on households, with thousands driven into eroding emergency savings or into debt. In December 2019, 9.8m people were in “financial distress” or were dealing with significant debt, yet within two months of the outbreak in the UK, 4.6m people had accumulated a further £6.1bn of arrears and debt – representing £1,076 and £997 per household, respectively.
Given the scale of the crisis, it is hardly surprising that many people jumped on lenders’ offers of payment holidays for credit cards, personal loans and mortgages. Yet whilst these might appear to be a “free lunch” from lenders, there is sadly no such thing in finance. For instance, whilst repayments might be frozen within a given payment holiday, the interest is not. Over the long term, therefore, this is likely to end up costing you more. It may also be the case that lenders are more likely to negatively assess you if you’ve had a payment holiday (e.g. when applying for a new mortgage in the future).
From a financial planning perspective, there is also the fact that debt generally has a negative effect on your financial stability. Repayments and high interest each into your monthly outgoings which might otherwise go towards saving or investing. As such, any window presenting itself for someone to reduce or eliminate their debts – such as the current payment holiday extension – should not be dismissed lightly. This is particularly important to consider as we all approach the Christmas holiday; a time when nearly 17m people (i.e. 1/3rd of consumers) typically go into debt to finance higher spending such as Christmas gifts.
Whilst we understand the desire for a lavish Christmas (especially after such a difficult year), we encourage readers to spend only what they can afford, recognising that the country is still struggling out of recession and financial challenges ahead for the country in 2021. If it is at all possible, we suggest considering a payment holiday at this time only as a last resort. For those currently in a payment holiday, the coming months could be a good time to start setting money aside to help settle any costly debts which are eroding your ability to save and invest. Some ideas to consider for December spending include shopping online, bargain hunting and selling (or passing on) unwanted gifts from the previous year.
One final note for those looking to buy a property at the present time. The Stamp Duty Holiday is still set to expire in March 2021, with no guarantee of an extension. Given that this could save thousands of pounds in taxes, buyers may want to consider seeking professional advice about when might be the best time to act. Certainly, there is some speculation that house prices might fall after March 2021 once the tax break ends – but this is not guaranteed or even likely, given that the Chancellor has already demonstrated a willingness to extend the aforementioned schemes. One idea is to consider whether you could save more by purchasing within the Stamp Duty Holiday period, or by waiting for a potential 2-6% fall next year. Depending on the results, it may make sense to speak to your adviser about acting sooner rather than later.
Conclusion & invitation
Interested in discussing your financial plan with an experienced financial adviser? Get in touch today to discuss your financial plan via a free, no-commitment consultation:
020 8366 4400 or enquiries@cedarhfs.co.uk.