Coronavirus Job Retention Scheme update

With almost a quarter of UK employees furloughed, the recently announced details of the Coronavirus Job Retention Scheme extension are important for employers and employees.

From July

Businesses will be able to bring furloughed workers back part time from 1 July, which is a month earlier than previously announced. Employers will be required to pay the wages of their staff who return to work part time in July, but will still receive a government contribution for the hours the employee isn’t working.

The job retention scheme will continue to operate in the same way since its launch during June and July (if staff do not return part time) with the government paying 80% of wages up to £2,500 for furloughed staff.

From August, the government contribution will remain at 80%, but employers will be required to pay employer national insurance and pension contributions.

September and October

From September, employees will continue to receive 80% of their wages (up to £2,500) but employers will be required to pay 10% of employees’ wages as well as national insurance and pension contributions, with the government’s contribution dropping to 70%.

In October, the final month of the scheme, employers will pay 20% of furloughed employees’ wages and the government will contribute 60%. As has been the case throughout, employers can top up employees’ wages to 100%.

10 June deadline
These changes will be introduced as a new scheme, with the current system coming to a close on 30 June. However, only employees already furloughed before this date will be eligible. This means that organisations looking to make use of the new scheme will need to ensure their staff are furloughed by 10 June to meet the minimum three weeks required by the current scheme before it ends.

For more information, see the GOV.UK website.

Self-Employment Income Support Scheme extension

The government’s Self-Employment Support Scheme will also be extended, with those eligible to receive a further and final grant of up to £6,570 in August.

The grant will be worth 70% of average monthly trading profits, and will be paid in a single instalment covering three months’ worth of profits, capped at £6,570 in total.

For more information, see the GOV.UK website.

New FCA measures for mortgage customers

The FCA has this week introduced new measures for people finding it difficult to make mortgage payments because of Covid-19. These new measures mainly relate to payment holidays and what will happen when they come to an end.

It’s important to note that interest will continue to build during a payment holiday and the monthly payments may increase afterwards, so those that can afford to continue mortgage payments should do so.

Payment holidays

A payment holiday is a period of time, agreed with your lender, when you do not have to make mortgage payments. A partial payment holiday is where your lender lets you make reduced payments. Payment holidays are designed to help consumers who are struggling to make payments due to Covid-19. FCA guidance makes it clear that payment holidays should not have a negative effect on credit files.

Both types of payment holidays are temporary, and the full amount will have to be repaid (plus interest) when this period comes to an end. This may mean that monthly payments are higher than they were before.

For those looking to take a payment holiday, it must be agreed with their lender by 31 October 2020.

Coming to the end of a payment holiday

Mortgage lenders will communicate with consumers about what will happen when the payment break comes to an end.

Depending on individual circumstances, options will include:

  • Starting to make mortgage payments again if able to do so. Lenders will work with their customers to find the best way to catch up with missed payments
  • For those that can’t yet afford to continue payments in full, their lender should work with them to find out what they can afford to pay and will reduce payments for a further 3 months
  • Consumers that cannot yet afford to make any repayments will get more support and their lender will consider a further 3 month payment holiday. Lenders may be able to offer support other than a payment holiday.

While payment holidays will not have a negative effect on your credit file, other methods of support might and lenders should explain this if this is the case.

How repossessions will be affected

The FCA has made it clear that house repossession action should be halted until 31 October 2020. This applies to all mortgage borrowers who are at risk of repossession, whether or not their incomes are affected by Covid-19.

However, some consumers may choose for their home to be repossessed if they believe it’s in their best interest. Those consumers should contact their lender to let them know.

If a repossession is stopped but the customer is not able to maintain payments, the total amount owed will increase due to interest and fees continuing to build. This means that consumers are likely to get less back at a later date if their property is repossessed and then sold by the lender.

If property prices go down in the time between now and when the property is sold, then consumers might get less back, or even nothing if the property is sold for less than what they owe.

Full information and guidance is available on the FCA website.