Furlough fears sparked as Britons load up on cheap mortgage debt

Furlough has provided individuals with significant assistance throughout the ongoing pandemic, but the measure is set to come to a close. With the Government walking back its formal support, however, concerns have been raised about the consequences, particularly for those taking out loans – such as mortgages. It comes as the number of mortgages offered to higher-risk borrowers has risen to a five-year peak, according to a study from international audit, tax and advisory firm Mazars.

The payment breaks were for unsecured loans, with the latest data suggesting one in ten borrowers are still concerned about maintaining repayments.

First introduced back in March 2020, coronavirus payment holidays served as an effective forbearance measure.

Those who knew, or suspected, they would struggle financially due to the pandemic were permitted to request a break from significant financial responsibilities in order to get back on their feet.

For many, these have been available for a six month period if individuals were directly or indirectly impacted by COVID-19.

But it is mortgage payment holidays which have piqued the interest of analysts and led to concern about the consequences of furlough.

Data from the Equifax Market Pulse showed mortgage static balances – which are considered a proxy for borrowers on forbearance measures – peaked at 18 percent in June 2020.

It remains to be seen how this so-called “cliff edge” will impact Britons, however, fears of financial instability are increasing.

Paul Heywood, Chief Data and Analytics Officer at Equifax UK, said: “As the economy re-opens and many of the pandemic’s emergency support measures are phased out, it’s important we recognise how successful they have been in protecting the financially vulnerable in the UK.

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

“For lenders, identifying people in, or about to enter, financial difficulty is going to be a key theme of 2021, especially as Government support is curtailed.

“While for borrowers, the important thing for people to remember is that the end of these forbearance measures does not mean that there is no support available.

“A range of tailored support measures have been introduced in the last year, and guidance is readily available for those that need it.”