Uptake of payment holidays during the coronavirus crisis
One in ten consumers made use of a payment holiday at some point during the crisis, with half of these taking more than one holiday.
A minority of consumers who took a holiday could have managed comfortably without, but the vast majority would have struggled or been completely unable to make their payments.
One in ten households have made use of a payment holiday during the crisis
A feature of the coronavirus crisis has been the widespread use of payment holidays to provide forbearance for households. These measures have been seen as essential to support families who might be experiencing temporary financial difficulty, but who would otherwise have sound financial circumstances.
Which?’s Consumer Insight Tracker has gathered data on the incidence of arranged payment holidays and payment plans throughout the coronavirus crisis. In August, we asked consumers about their past and present payment holidays, in order to establish what proportion have used a payment holiday at any point since coronavirus restrictions were put in place in March for any of a number of household expenses, such as housing costs, loans, credit card, overdrafts utility bills and council tax.
Our figures suggest that currently 5% of consumers are taking a payment holiday, but that 10% have done this at some point during the crisis. Of these consumers, about half have taken one payment holiday only and half have taken more than one, with credit cards, council tax, overdrafts, loan and mortgage holidays being the most commonly arranged holidays among the population as a whole.
40% say they could not have made their payments without access to a holiday
Need for the payment holidays will inevitably vary across households, and to get a sense of this we asked consumers who had taken a holiday at any point if they would have been able to make the payment or payments had the holiday/s not been available to them.
We found that two-fifths (40%) of the 207 people who reported taking at least one payment holiday say they could not have made all their payments without it.
A further 40% said they could have made their payments, but with difficulty. Many consumers taking payment holidays will have chosen to do so at a time of uncertainty when they were unsure how both their income and expenditure would be affected by the crisis. It may be that some people over-estimated the impact the crisis would have on their household finances, but for others it may have been a conscious financial decision and may well have been important to alleviate worry and stress during a very difficult period.
A small proportion of those who took payment holidays (13%) said that they could have comfortably made their payments even if holidays were not available to them. The decision may not have been a good choice for this group. A potentially unforeseen drawback is that interest continued to be added to the debt. This was acknowledged by some respondents, for example:
The majority of consumers were satisfied with their treatment in arranging their payment holiday
Given the scale of take-up of payment holidays and the slower than hoped for economic recovery, concerns have been growing about how consumers are supported when payment holidays expire. For example, the Financial Conduct Authority has issued guidance to financial firms about how to treat consumers fairly at the end of a payment holiday and whether to provide forbearance to consumers who are unable to resume payments.
We found that a majority of consumers who had taken payment holidays (63%) were either fairly or very satisfied with how their lenders treated them in granting, coming off or extending their payment holiday.
However, 14% were fairly or very dissatisfied. Reasons for dissatisfaction varied, but they most commonly centred around not receiving enough support or that the payment holiday was too short for their needs and interest was still building up.
Overall, the widespread availability of payment holidays has almost certainly ensured that many households have been able to avoid a temporary economic shock from the coronavirus crisis leading to lasting financial distress. However, the slow recovery from the crisis means that many people are still experiencing what may ultimately be temporary reductions in their income and this highlights the need to monitor the impacts on consumers and treat consumers fairly as these measures are phased out.
The fieldwork was conducted by Populus on behalf of Which? between 12th and 14th August 2020. A sample of 2,083 consumers was surveyed and weighted to be nationally representative according to a range of demographic characteristics.
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