For many, these payment holidays will cease on October 31 – the same date the government’s job retention schemes end, leaving many facing job losses and crippling financial strain.

There is little doubt that both payment holidays and the government’s job retention schemes have facilitated a period of relative stability, helping many to retain jobs and stay afloat financially. But an estimated 6.25m households are still living on reduced incomes with a heightened risk of financial difficulties. Many of these households have agreed payment holidays with their creditors. 

As a result of this, Standard Life Foundation’s report, Emerging from lockdown, has warned of a further financial storm for millions.

Of those households granted a payment holiday nearly half have no money in savings at all, and 46% them think it is very likely (26%) or quite likely (20%) they will experience a loss of earnings as a result of COVID-19 in the next three months.

Researchers questioned nearly 6,000 householders and found only a quarter of those who had a bill payment holiday had sought debt advice. Around 1.6 million households could need debt advice when payment holiday arrangements end. Should this level of demand materialise, debt advice charities will face a very difficult situation after the current payment holidays end this autumn.

The report also found that although the government has allocated funding for more debt advice, this would not be in place by the end of October when many are likely to need it.

The report’s authors suggest that creditors of all kinds and their regulators need to be proactive in contacting their customers with payment arrangements coming to an end and ensure that they have a creative suite of sympathetic forbearance measures in place, reflecting the diversity of circumstances of their customers.

The Financial Conduct Authority has recently published draft guidance advising firms on how to help mortgagors beyond the end of payment breaks. But at present, there is little to no guidance on what customers with a payment arrangement on other commitments should do when it ends. 

At the end of July, one in six households (17%) had their earnings supported by one of the governments’ job retention schemes. These schemes are also due to end on 31 October 2020, leaving around 3 million households expecting a drop in income.

The researchers found that around a third of households currently supported by the schemes (31%) were experiencing financial difficulties at the end of July  – between four and five times the level among working households whose earnings had been unaffected by the pandemic. With this in mind, the report authors also recommend extending government support for workers in the hardest-hit sectors, including those who have fallen through the safety net provisions.

Mubin Haq, CEO of the Standard Life Foundation, said: “We are facing a cliff-edge situation at the end of October. Three million households have fallen through the cracks on the government’s job retention programmes. They will be joined by millions more when furlough schemes come to an end. This is happening at the same time as the vast majority of payment holiday measures come to an end, creating a perfect financial storm.

“Incomes reducing whilst outgoings are set to increase. Already nearly half of those on payment holidays are using credit to pay for food and other daily essential expenses.

“Regulators and lenders need to rapidly consider how they will manage the situation from the end of October 2020 to avoid large numbers of households facing enforcement action, including families losing their homes. In addition, capacity on debt advice needs to be increased quickly; more debt advisors are needed but they will not be in place within the next few months, so interim measures should be put in place swiftly.”