As we emerge from lockdown, millions of people in the U.K. are still on the government’s furlough scheme.
In March 2021, Chancellor Rishi Sunak announced an extension of the programme until the end of September. A quick reminder: Under furlough, the government pays 80% of an employee’s salary for the hours they can’t work, up to a maximum of £2,500 per month.
Employers pay the remaining 20%. In July 2021, the government will reduce its contribution to 70% and thereafter to 60%, with employers increasing their payments accordingly.
Also in March, the government announced another round of payment holidays to be applied for before the end of the month. That window has now shut.
Furlough facts
- December 2020 to January 2021: about 40% businesses furlough staff
- 15 March 2021: approximately 11.4 million people are on the scheme
- 15 March 2021: 1.3 million employers use furlough for their workforce
- Covid payment holidays: where now?
- Will being on furlough or a payment holiday affect my credit scores?
- An agreement with your lender is key
Covid payment holidays: where now?
A payment holiday is just that — you don’t repay your debt for a short period of time agreed between you and your lender. It’s important to remember that interest will continue to accrue on your debt during the payment holiday. So, the eventual cost of paying off that debt will be more than had you managed to pay it off normally.
By the end of December 2020, there were 130,000 mortgage payment holidays in place. That means 1 in 84 mortgages in the U.K. were subject to a payment deferral at that point, down from a peak of 1.8 million in June.
Will being on furlough or a payment holiday affect my credit scores?
You may be concerned that the good credit scores you’ve carefully built up and nurtured could be negatively affected by being on furlough and taking a payment break.
Being furloughed won’t affect your credit scores directly. However, there may be an impact on your income verification and affordability calculations — carried out by lenders.
An agreement with your lender is key
With payment holidays, the main credit reference agencies that hold your information — Equifax, Experian and TransUnion — initially pledged that as long as your payment break has been arranged with your lender, there won’t be any impact to your credit scores when you don’t pay during the time agreed. Credit Karma uses information from TransUnion.
Therefore, technically, a payment holiday won’t be recorded on your credit record. As we’ve already mentioned regarding furlough, lenders will be able to see that you’ve had a time where you didn’t pay off your debts and your balances didn’t go down. That may affect their decisions.
However, just as your financial situation ebbs and flows — especially during tough times like a global pandemic — so too can credit scores. You can start making improvements as soon as you are in a position to do so. Read more on how to boost your post-pandemic credit scores.
And remember, you can check your credit score right now on the Credit Karma website so you know your starting point.
Bottom line
The global pandemic has been an unprecedented whirlwind, leaving many people in the U.K. in uncertain financial situations. If you’re one of them, you’re not alone.
If you’re still on furlough, thinking about your finances may feel overwhelming. Similarly, if you’ve taken a payment holiday, now is not the time to beat yourself up about it. With some small, proactive steps, you could find yourself back on track sooner than you think.
It could help you make strides toward getting back to a position of strength and financial well-being.