Unsecured loan payment holidays hit 12-month high in March

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

Data from credit reporting agency Equifax showed that 10 percent of unsecured consumer loans had static balances in March, indicating that one in 10 borrowers chose to freeze repayments before the due date. March 31 from the Financial Conduct Authority – after which the program was closed to new applications.

This exceeded the peaks in July 2020 (8.5%) and January 2021 (7.7%)

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The city watchdog introduced payment holidays as a forbearance measure in May 2020 to support borrowers affected by the pandemic. Those who have trouble repaying their loan have the option of deferring payments for up to six months.

In contrast, data from Equifax showed that static mortgage balances – which indicate how many borrowers are using forbearance measures – peaked at 18% in June 2020 and are now back to pre-pandemic levels at 4. , 3%.

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The government introduced a series of measures to support borrowers during the pandemic, which prevented a high number of defaults.

Equifax found that London was the only region in the UK to experience a significant increase in arrears. The rest of the UK has broadly followed a similar pattern of improvement, with Wales, Scotland and the North East recording rates below the national average.

“As the economy reopens and many emergency pandemic support measures are phased out, it is important that we recognize how successful they have been in protecting financially vulnerable people in the UK,” said Paul Heywood, Data and Analytics Manager at Equifax UK.

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“There are still a few warning lights on the dashboard, and this spike in borrowers asking for payment holidays is a sign that we are not out of the woods yet, but early indications are telling us that we have avoided it. a devastating spike in people in default.

“For lenders, identifying those in financial difficulty or on the verge of falling into difficulty will be a key theme in 2021, especially as government support is reduced. While for borrowers, the important thing to remember is that ending these forbearance measures does not mean that there is no support available. A range of tailor-made supports have been introduced over the past year, and guidance is readily available for those in need. “


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