Mortgage holidays offered by lenders in response to the Covid-19 pandemic were utilised by striking numbers of borrowers whose incomes were not hit by the pandemic, a new study from the Institute of Fiscal Studies has found.
The report from IFS delves into data from the Money Dashboard budgeting app, and compares the payment of bills like council tax and mortgages between those who were furloughed and a ‘control group’, made up of users whose incomes did not really change between March and June.
Unsurprisingly, the study found a large decline in the payment of mortgages among furloughed workers. The share of users who were furloughed and made mortgage payments dropped by more than a quarter in May and June 2020 compared to the pre-crisis period of October 2019 to February 2020.
However, looking at the control group there was also a notable decline in the share of users making mortgage payments, by 16 per cent.
The IFS concluded that this showed mortgage holidays were an easily accessible form of liquidity for workers who were furloughed, but they were also in demand among borrowers whose incomes were not materially affected by the pandemic.
It said: “The fact that a large proportion of even those mortgagers who saw no fall in income stopped paying their mortgage (presumably on a mortgage holiday) may suggest that these households had a pre-existing desire to access greater liquidity, which the increased availability of holidays during the crisis facilitated.”
The report found large falls in mortgage payments among those receiving the Self Employed Income Support Scheme (SEISS), down by around a third on the pre-crisis period. However, notably following the receipt of the SEISS there was a “sustained recovery” in mortgage payments among this group.
It stated: “This suggests that some members of this group accessed additional liquidity via mortgage holidays in the long waiting period between the start of lockdown on 23rd March and the first SEISS payment on 18th May; and once they received the SEISS, they returned to making mortgage payments.”
The fall in mortgage payments was even more dramatic among universal credit recipients. In the first month of universal credit receipt, the share making mortgage payments dropped to half of its pre-crisis levels.
The IFS found that there is then little change in the subsequent months of universal credit receipt, which it says “suggests that the receipt of universal credit is not sufficient to get these households paying their mortgage again”.
Data from UK Finance has suggested that the mortgage holidays offered were effective in keeping arrears low during the second quarter of the year.