What has impact of Covid 19 been on Debt Repayments?
The University of Birmingham has been monitoring financial inclusion in Britain since 2013.
This website provides key findings, selected charts and a link to the full downloadable report issued in October 2020.
The report authors are Stephen McKay and Karen Rowlingson.
Their key findings were as follows :-
COVID-19 is having a massive impact on household finances, with personal debts increasing.
But some people are seeing their savings rise as their incomes remain unaffected and their spending has been curtailed – says a new financial inclusion monitor from the University of Birmingham and the University of Lincoln.
The research also shows that the impact of COVID-19 comes on top of poor economic performance in 2019 (a likely result of Brexit uncertainties). Economic growth was negative and in the fourth quarter of 2019 it was zero.
Furthermore, unemployment, under-employment and zero-hour contracts had all increased in 2019, while wages had started to fall in real terms towards the end of that year and into early 2020.
The 2020 briefing, now in its eighth year, highlighted that even though strains on family budgets were there prior to the pandemic, the impact of COVID-19 on top of this situation looks set to be monumental.
From just March to May 2020, between one quarter and one third of jobs were furloughed, and from March to April that year there were 2 million more claims for Universal Credit than there had been in the same period in 2019.
By the end of May 2020, 28 per cent of the population said that COVID-19 had had a direct negative effect on their income.
For some households the Job Retention (furlough) Scheme and the boost to Universal Credit have been incredibly important interventions to support people’s incomes.
However, those on ‘legacy’ benefits, are not seeing the same level of income protection, leading to a two-tier benefit system.
Karen Rowlingson, Professor of Social Policy and a member of the Centre on Household Assets and Savings Management (CHASM) at the University of Birmingham, and co-author of the report said:
"COVID-19 has had, and is likely to continue for some time to have, a devastating impact on UK household finances. But it is important to note that, even prior to the pandemic, family budgets and the UK’s economy more generally were already faltering in many ways, possibly as a result of Brexit-related uncertainties during 2019."
"Our research shows these are extremely difficult times for the country and many within it.
Some statistics reveal, however, that a significant minority of the population is unaffected, financially, by COVID-19 or, indeed, are somewhat better off financially as their incomes remain the same but their expenditure drops.
Inequality is rising still further as a result."
MPs call for the FCA to rethink coronavirus mortgage payment holiday limit
Over 30 MPs have written to the FCA Chief Executive Nikhil Rathi calling on the FCA to rethink the 6 month limit the regulator wants to impose on coronavirus mortgage payment deferrals.
The All Party Parliamentary Group (APPG) on Mortgage Prisoners issued this letter.
The MPs say that the FCA should take account of the impact of the new restrictions on income and jobs by removing the 6 month limit and giving all mortgage holders the right to a 3 month payment deferral.
The limit of 6 months will penalise people in areas of the country and sectors of the economy which have had greater restrictions imposed on them since the initial March lockdown.
If people are denied access to a payment deferral then it will be a lottery for them as to what they are offered by their existing lender. They could find their credit file damaged and be stuck paying higher interest rates.
The self-employed and business owners could find their prospects of borrowing to invest or sustain their business constrained.
The MPs express grave concerns that the operational pressures parts of the mortgage industry are facing will mean that these customers will struggle to access any tailored support or gain a fair outcome.
UK Mortgage Prisoners are telling us that their members are encountering difficulties contacting mortgage administrators and are not being offered support.
The FCA’s artificial limit of six months could cause significant hardship and exacerbate existing stress and mental health problems. Many of these individuals have been making partial payments since the initial lockdown and will find the ability to access further flexibility to get them through the new restrictions limited by the FCA’s proposals.
People in our communities are suffering and they need support which is quick and easy to access.
The MPs call on the FCA to expand the right to a further 3 month payment deferral to all customers and to not put an artificial limit on the support individual customers can access.
Bloom’s comments on the Report and Letter
Bloom considers that the report and letter highlighted many very important issues but in our opinion one the main problems is the lack of coverage of alternative fair finance lenders in the UK.
From details provided by CfRC in 2 reports on “Fair for You” an affordable lender, the following statistics were noted
2017 - “It was postulated that it had to change and a report at that time in 2017 called for a shake up of low cost credit provision for the 12 Million people estimated to be unable to access “mainstream” credit.”
2020 - Report stated It is estimated that around 15 million people in the UK struggle to access affordable credit.
Please also note the following facts about existing Credit Unions and Responsible Finance Organisations (RFO's) in the UK
Bank of England statistics issued on 28th August 2020, shows there are now just 277 remaining Credit Unions in England, Scotland and Wales with 145 in Northern Ireland.
The Community Investment Steering Group Report Nov 2019 - Scaling up Community Investment in the UK states that there are only 23 active RFO's in the UK.
From these statistics it estimated that no more than 5 - 10% of the UK has any coverage available from a Credit Union or a RFO. There are 69 cities and over 48,000 towns in the UK. In the last 10 years many Credit Unions have been closed and NO services replace those lost to the massive detriment of the Community in which they were based.