The number of households who have missed credit card or loan payments in the past month may have doubled, rocketing from an estimated 410,000 in September to 780,000 in October, new Which? research shows.
These findings come as financial support measures are due to be scaled back from 1 November, prompting concern over whether providers will be able to sufficiently support customers in financial difficulty.
The furlough scheme, also known as the Coronavirus Job Retention Scheme (CJRS), is coming to an end on the same day, which is expected to prompt further redundancies. The Bank of England has predicted that unemployment is set to rise to 7.5% by the end of the year.
Since August Which? has argued that lenders need robust plans to get struggling borrowers through the winter months, after finding that furloughed workers were three times more likely to have missed bill payments.
Which? research reveals huge rises in credit card and loan defaults
According to the latest results of the Which? Consumer Insights Tracker, which regularly surveys a nationally representative sample of 2,000 household, an estimated 2.8% of respondents defaulted on at least one credit card or loan repayment in October.
This means that approximately 370,000 more households across the UK missed payments in October than in September.
A missed payment is an indicator of financial difficulty, and it’s therefore hugely concerning to see this rise ahead of the Financial Conduct Authority (FCA) reducing the level of compulsory financial support for lenders, combined with the upcoming end of the furlough scheme – both of which could pitch even more borrowers into financial hardship.
- Find out more: debt advice from Which?
Lenders to provide individual assessments
The FCA has announced that, from 1 November, lenders will be required to carry out assessments of each customer’s individual circumstances, before offering a tailored support.
But with resources already stretched, and reports of long wait times to talk to lenders over the phone, Which? has serious concerns about the industry’s capacity to deal with a potential deluge of requests for urgent assistance once the effects of government and FCA support are withdrawn.
Which? therefore believes the FCA should be prepared to quickly reintroduce measures similar to the original support if the industry is shown to struggle to cope with demand.
Financial help to be recorded on credit reports
Another change due to come in from 1 November is the reporting of financial help to credit reference agencies.
Until now, payment holidays have not been marked on borrowers’ credit files, as an acknowledgement of the exceptional circumstances caused by the pandemic.
However, payment holidays taken after 31 October will be reported as missed payments on credit files – regardless of whether the borrower has already received financial help, or whether it’s been formally agreed by their lender.
Having missed payments on your credit file can have a long-term detrimental impact on your credit score, and possibly make it more difficult to access credit in the future.
- Find out more: credit reports – all you need to know
What happens when you miss a payment?
Missed payments, also known as defaults, will be noted on your credit report to indicate that you have failed to stick to the terms of your original credit agreement.
This, in turn, can have a detrimental affect on your credit rating, which indicates to lenders how ‘trustworthy’ you are as a borrower.
As lenders will want to be sure that any money they lend will be returned to them, having a bad credit score can therefore mean you’re more likely to be turned down for things like mortgages, loans and credit cards in the future.
- Find out more: how to improve your credit score
Which? calls for firms to be proactive with help
Once payment holidays end, borrowers could still be faced with bills they can’t afford to pay. Many will rely on their banks to help them find a feasible way forward with their finances – so we’re asking lenders to be as proactive and flexible as possible when it comes to offering help to customers in financial difficulty.
Gareth Shaw, head of money at Which?, says: ‘This significant increase in missed payments is a warning sign that large numbers of people could be on the brink of really struggling financially, and reinforces our concerns about the impact of the government, regulators and industry rolling back vital support.
‘There is a real risk that the additional hurdles that customers will need to clear could mean help is delayed, or that they aren’t able to access it all – which could leave many facing serious debt problems.
‘Firms need to be flexible with people who need urgent help, and if there is evidence that customers can’t get the support they need quickly enough, the regulator must be prepared to introduce stronger measures.’
- Find out more: how to deal with debt
source https://www.which.co.uk/news/2020/10/missed-credit-card-and-loan-repayments-rise-as-support-is-withdrawn/