Recovering Financially From Lockdown: The Practical Steps

Today we’re going to be talking about recovering financially from lockdown and some practical steps you can take. I know that you may have experienced some pretty significant changes in your life during COVID and also as we continue through these ups and downs that we’re all experiencing right now.

We’ve had lots of really great conversations about this in the Facebook community. We’ve talked about what happens when you lose an income. We’ve talked about redundancy. We’ve talked about furlough schemes, and all sorts of different things. We’ve also talked about some of the positive results of lockdown as well in terms of finances.

This has happened to us during lockdown, too. My husband had to take a fairly significant pay drop for three months during lockdown. We ourselves had to go back and review our spending plan and our financial situation. We had to look at things like insurance: we had to drop down his income protection insurance and go through a couple of different changes ourselves with our finances.

There are some real challenges out there at the moment. I just want to share some statistics around some of the problems that some of you may be facing at the moment, just to put a bit of a reality check on some of these things.

According to UK Finance, which is the body that represents the banks and the finance industry, loan providers have already received over 700,000 payment holiday requests on personal loans. Mortgage lenders as well have already hit 2 million payment holidays. You may yourself have taken some decisions to take a mortgage payment holiday. The FCA have announced an extension to that scheme until the end of October 2020. So many people are still applying, even now, or looking at whether they should continue toextend their mortgage payment holiday. UK Finance have also said that a million people are getting payment holidays on their credit card bills.

Lots of really significant stats in there to show what the government and the FCA are doing to support people in debt. If you have made the decision to take payment holidays, you will at some point have to start repaying those back again. The interest on those loans will still be accruing even when you’re on a payment holiday.

Step Change, who is the debt charity that we often talk about, estimate that people in the UK will accumulate an additional £6 billion in debt because of the pandemic. Step Change say that on average, people will rack up an additional £1,076 of arrears and £997 worth of debt.

I don’t often share statistics on the blog, largely because I don’t want for you to read this and feel fear. Debt is one of those words that a lot of people think is negative, but actually in this situation, I think that what the FCA and the government have put together in terms of supporting people is very, very positive. We shouldn’t see this as a negative just because we’re using words like debt.

Today we will be talking about some really practical aspects of how we go about managing and dealing with some of these challenges. To help answer some of those questions, I’ve invited Paul Went from Shawbrook Bank, who is the Managing Director of the bank’s Consumer Division.

Thank you so much, Paul, for coming onto the podcast today. How are you doing?

You’re welcome, Catherine. Thank you for having me.

You’re so, so welcome. Paul and I had a call last week in preparation for our podcast today because we’re really, really supportive of Shawbrook Bank. Shawbrook have decided to sponsor our podcast for the next 12 weeks so you’ll be hearing us talk a little bit more about Shawbrook. As you know, on the blog, we only support brands and companies that we’re really supportive of and there’s a link between our mission and theirs.

Paul, in terms of your experience, one of the things we love to get talking about is not just the practical steps, but also some of the emotional aspects of money and how our relationship with money does have an impact on the decisions that we then make.

Tell us a little bit about yourself and how did you get into finance in the first place?

Yeah, thanks Catherine. Actually, I think we’ll probably come back to it later but hearing some of those numbers of people that have been affected by the payment holidays and the mortgage holidays, it’s quite stark, isn’t it? Seeing those numbers in black and white? I think we’ve all got used to sitting in front of our TV’s at five o’clock every day and seeing the Prime Minister or Chris Whitty tell us how many people have been infected or sadly how many people have died. I think there’s these other set of numbers actually, that aren’t in the conversation, which is how many people are indirectly affected by COVID. From can I pay my bills? Can I pay my mortgage? Can I keep my car running to get to work? Just hearing you talk about those numbers really brings that into stark focus for me.

I’ve been in banking and financial services for more than 20 years. I’ll be honest, I certainly didn’t go to university with a plan of going into banking. I think at the time I wanted to do some form of architecture, but that wasn’t to be. I ended up going into a graduate scheme at Lloyds Bank. I spent a lot of time in retail before going to university. I worked at an Asda store for years, pulling the fruit and veg. I was called a checkout hero! When the queues were too long, they would call me and I’d be there to help get those queues down.

When I actually got into banking I figured out quite quickly that once you get past the zeros and ones, it’s another service for customers. In fact, one of the most important services for customers in the UK. When they’re ready to buy a home or when they’re ready to make one of the biggest purchases that they probably will make in their life, which is a car or a home.

The situation we find ourselves in the moment is that customers are looking for us as Shawbrook Bank, and all banks, to really understand and help them during what is the most uncertain time I’m sure you and certainly myself have ever lived through and probably ever will live through.

The important thing for all of us is that we try to help customers and try and figure out a way through, whether it’s banking products, a mortgage or a car loan or something else.

In terms of Shawbrook working with The Money Panel and the In Her Financial Shoes podcast, is because we really understand what you’re doing. Giving people as much advice as possible, encouraging them to think openly and honestly about their finances, and helping people to have a great relationship with their finances. So they’re as armed up as they can be when they face a situation like this. Whether they’re going to lose their job, whether they’re going through a period of reduced income, so they can have a good open, honest conversation about their finances.

I did do your test, by the way. I did check my own money personality.

We’ve put together a little fun quiz. We’ve put together a really super fun quiz. There’s like six or seven questions on there. Paul messaged me and said myself and my wife did your quiz. What were the results and what did you gain from doing the quiz, Paul?

Well, first of all I am pleased to say that we’re still married after I messaged you guys! So clearly, we’re a match. I was a selfless giver and my wife, I think, was a money planner.

Did you resonate with those?

I definitely am the spender in the house, so I’m glad that it showed me that I generally spend on others. Sometimes I think I use that as an excuse for things. My wife, yes: she has a spreadsheet for everything. She knows where every penny has gone. I guess I’m a bit like an interior designer. There’s a very famous interior designer on TV, Lawrence Llewellyn-Bowen. Apparently his house is just a complete tip because he spends his entire day designing people’s houses and in the evening I think he just wants to relax with a glass of wine. My excuse is that my day job is money and helping people out with that. By the time I get home, I’m done. That’s my excuse anyway. It was a really interesting quiz.

Thank you for sharing that. It is interesting, a lot of people who follow us, contact us, and who we have conversations with in the community, do talk about the fact that just because you’re an accountant, for example, doesn’t mean you’re good with numbers. Just because you work in a bank doesn’t mean you’re good with numbers or good with money. That’s what I find really interesting about money and this is what I love about your campaign.

It is about understanding. Understanding the numbers, understanding when you make an application for a loan it’s not always the headline number that you get. Understanding the consequences of taking payment holidays and what’s underneath that.

Of course who teaches us this stuff? Certainly our generation didn’t have great education in schools around money. It’s definitely a really interesting conversation to have.

One of the biggest challenges for people right now, Paul, is trying to make decisions around money. In your world and the work you’re doing with Shawbrook Bank, what do you think are some of the biggest challenges for people right now?

I think certainly the challenge for a lot of people in the UK, and again, I’ll go back to those numbers you were quoting earlier, is just either the sheer uncertainty of what’s going to happen in the next weeks and months. Is my job safe? Am I going to be able to pay my bills? Am I going to get COVID-19? Am I going to have to self-isolate in some way? Will I still get paid if that happens? I think all of that culminates in uncertainty and nervousness around either paying my bills or being able to do my job and getting paid.

What we have seen from the thousands of customers that we’ve helped is three or four really separate groups.

Customers that are very clear on their finances and have been immediately impacted by COVID. So somebody in the hospitality sector, in restaurants or in a pub, people work in the travel sector, airports, air hostess, or anybody in the travel industry. Their jobs, their industry effectively just closed down in April. Those guys need immediate help.
The second group are people that have taken a reduction in income. So they’re working lesser hours or they’ve been furloughed, and they’re trying to understand what they can afford to pay out monthly on their bills. They’re contacting us about some form of reduction in payment. It’s about that uncertainty and then planning financially on how they can pay their bills, their mortgages, their loans, their food, their heating, everything else.

That’s alien to some people, isn’t it? If you’re a planner, a lot of planners will think about all of those different scenarios and maybe pull out, well, if this happens, this is how we’ll cope and if this happens, this is how we’ll cope.

But for those people who are not so naturally inclined to plan ahead, because our human bias is we don’t like to plan ahead. We like to enjoy the here and now, We don’t want to have to wait when we want something. One click of a button on Amazon and it arrives the same day. Often it’s very difficult for the mind to think too far ahead.

I think this is a really interesting conversation to start thinking about, okay, what could happen? What can we do about that?

So, Paul, what would you say if somebody is reading this and they’re struggling to pay their debt, maybe it’s a personal loan repayment, maybe they’ve been furloughed or they’ve suffered some loss of income over recent months. What should they do?

Yeah, that’s a really good question. So I think the first thing they should do, is have areally good handle on what their incoming and outgoings are. Have a really good honest look at what they can afford and what they can’t. I think if they’ve got that picture, absolutely the next thing they should do is phone their lenders.

The reassurance I’d give your readers is we, as banks, as lenders in the UK, completely understand the situation that everybody is going through. We’ve been given really good advice by the regulator. You mentioned earlier on, the advice of the FCA and the guidance that the FCA has given us to ensure that when you make that call, when you speak to other colleagues at Shawbrook Bank or elsewhere, they will completely understand your situation.

They’ve got a number of tools to help you out. Typically they’ll go through what we call an income and expenditure, which is just really validating what you’ve done yourself and understanding what you can, and want to, pay a month to your mortgage or to your loan. They will look to arrange that for you so you can pay reduced periods for an agreed period of time. If it’s for a shorter term, we can offer payment holidays as you’ve mentioned.

It’s worth remembering that they’re more suited if you’ve got a real certainty that this is going to be for a short period of time and you’re going to be able to go back to making the payments. Payment holidays are perfect for that. They’re not so great if you’re going to need help over a longer period of time. Really, you need to speak to your lender about some form of reduced payment.

What impact will that have on somebody’s credit rating? Because I know that when payment holidays initially came out, there was a lot of fear that I can’t do that because it’s going to affect my credit rating. And then the reassurance was given out that as long as long as it’s an arranged agreement, that you don’t just cancel your direct debit, then it wouldn’t affect your credit rating.

But I understand that there are some potential changes to that, depending on what you do after that initial payment holiday. What’s the impact for people on their credit files, Paul?

Yeah. It’s worth remembering the principles of why they set up this idea of not affecting your credit rating when we first introduced payment holidays. The idea of that was God willing, COVID is not going to be here forever and things will get back to normal at some stage. So any support that we give our customers, either in the financial services sector or elsewhere should be a temporary measure that isn’t going to hold you, me, or any of our customers back in any period in the future.

If we wanted to borrow again on a mortgage, or if we wanted to borrow money for a car loan or anything else, home improvements, this period of time where we took out some form of payment deferral or payment holiday doesn’t impact that. So that was the principles that the FCA set around not impacting a credit file.

As this period is extended, probably longer than we expected or hoped, our customers are needing a more longer-term form of support. It’s probably more responsible now for that to be registered as part of your credit rating. The reason for that is that all lenders will make an assessment on you and me when we take out or borrow credit. We need to make sure that we’re lending responsibly and we’re lending to ensure that you and I can afford to pay back that loan.

So understanding people who are taking longer term payment support is an important part of registering that on the credit reference agency.

Talking of payment holidays, should people just ask for a payment holiday?

I go back to principles we spoke about earlier on, so I think that if you sat down and you’ve had a really good look at your finances and you understand that you’re going to have a period of reduced income, that sounds like it’s a scenario where you need a payment holiday and you should phone your lender and you should talk to them about that.

It’s useful to talk about the implications of these decisions and well, what does that mean? It means maybe you’re deferring it for later and I’m guessing Paul, can people make overpayments later down the line if they’re then in a different financial situation?

They should always check their credit agreements to make sure that they can make overpayments without penalties. Now most mortgages will allow you to pay up to 10% of your balance each year without any penalty, so yeah, absolutely. You can catch up and you can pay more off.

Today we're going to be talking about recovering financially from lockdown and some practical steps you can take. I know that you may have experienced some pretty significant changes in your life during COVID and also as we continue through these ups and downs that we're all experiencing right now.

Paul we’ve heard a lot about payment holidays and payment deferral. We’ve heard in the news recently, there are millions of people who have taken that option. They’ve taken those payment holidays on loans and mortgages and credit cards.

Is there anything else that people need to be aware of in terms of any impacts on payment holidays, other than the things we’ve already spoken about?

No. I think the three things to remember is if you take them for a longer period of time or take other forms of support from your lenders, that could have an impact on your credit profile.

The second thing is, remember that you could pay more interest, as you mentioned, if you defer any payments on your loan.

And then really the final piece is constantly review your finances. Make sure that how you set up your borrowing and the arrangements you’ve made with lenders fit with your income, because that could change again.

We’ve seen in this second wave that we’re going through at the moment, that more areas of the UK are being impacted by, not necessarily national lockdown, but local lockdown, which is impacting jobs.

Actually that’s a really good point. So what about for people who maybe don’t need to take payment holidays or deferrals? They’re kind of okay. But they may be just wanting to have a bit of a trim back on their spending. What can they do?

Well, I think that they should look at what they’re spending each month. They should look at typically what they’re paying out to their utility bills, to their car insurance if they drive, other bills associated with their home. We’ve seen insurance, particularly car insurance, drop significantly over the last six months as car insurance companies realise you’re on the road less, no-one’s driving. They offered a refund to people three months ago: it wasn’t a large sum of money, but it was a refund that people could take advantage of.

Really just having a review of what they’re paying out to and making sure they’ve got the best deals. There’s plenty of comparison sites out there available, I’m sure that there’s lots of deals to be had actually at the moment. Particularly on energy as well.

Yeah. Which is an interesting one. Isn’t it? Even my husband said to me this morning, I said, can you put the heating on? And he was like, no, just put some more jumpers on. I was like, no, I work from home every day now I’m going to have the heating on.

We are in that same battle. I don’t know if the money planner and the selfless giver have a different view of what’s warm or not!

Yeah. I mean, he’s working from home this afternoon, actually. So I’m sure he’ll be a very appreciative of the fact that I have had the heating on all day and it’s nice and toasty in the house now.

Shawbrook have got some pretty cool resources on your website in terms of some budgeting tools. Are there some good resources there Paul, for people to have a look at?

We’re really, as a lender, trying to give our customers as many tools as we can for them to really have a good understanding of their finances.

One of the principles that we’ve always had at Shawbrook Bank is we want our customers to understand any products they take with us, be it a savings product or a lending product, so our personal loans would be a good example in this case, to understand the cost of that loan upfront. Understand therefore whether they can afford it, whether they can budget for it and if it’s the right thing for them today, because even in this pandemic, or at the moment, somebody will need a new car. Somebody might need a loan for that.

Now more than ever, if we’re providing those services, as I spoke to you earlier on about, we want to make sure that customers are making really informed decisions about their borrowing and making sure it’s the right thing for them.

So tell us a little bit more about your MoneySure campaign.

The MoneySure campaign is based on those principles of customers understanding what they can afford, when they can afford it. On our website, we’ve given them tools to really understand their monthly budgets, whether they’re saving enough money, whether they’ve got a buffer.

We talked earlier on about uncertainty. Really you should be looking to have a buffer of at least three months of your monthly salary. I know that sounds like an incredible amount of money and it would be difficult for anybody to save that, but working towards having that buffer can help. It’s really all of those tools to give our potential customers or even people that aren’t customers with Shawbrook today, the ability to make informed decision about their savings and their borrowing.

I was actually looking at the website myself last week because I applied for the bounce back loan during lockdown, and it’s sitting in one of my pots at the moment.

One of the questions from my audience was, where are people keeping their money? I was like, Ooh, actually, that’s been on my list to-do because I’m so busy looking at everybody else’s finances. Sometimes you don’t have time to look after yourself.

I was actually having a look at your site because you offer some pretty good rates as well on business accounts. That’s certainly somewhere I’m looking to store my bounce back loan for the time being.

I love the MoneySure campaign because it really does help people to understand what’s available to them. There’s loads of helpful guides and links in there.

Lastly, Paul, if people are really seriously worried about money and things like reviewing their spending isn’t enough and they really need some additional support way beyond perhaps having conversations with their mortgage companies and payment holidays, where would be a good place for them to get additional support?

Sure. First off, the thing I would say is that if you are in that situation, you’re definitely not alone. You shouldn’t feel isolated particularly at the moment. There are a lot of people that are going through severe uncertainty about their income and how they’re going to afford to pay their bills.

The two services that we recommend is Step Change, and the National Debt Line. They’re really well equipped to help customers in the circumstances that you just described. I would definitely recommend talking to either one of those agencies if you’re having problems. Remember that you’re certainly not alone in getting through this situation.

Thank you, Paul. I know that Step Change you don’t even need to call them. They have a questionnaire you can fill in on their website. You can do it in the middle of the night, if you’re up in the middle of the night, worrying about money, which I know is the time often when people start to worry about money. And then they do offer ways to get that support without you necessarily having to pick up the phone. Because that can be a real challenge for people.

Often if you’re in that situation, we bury our heads in the sand. It’s a natural human reaction to just go into fight or flight mode.

Just to share an additional tip: your mental health and how you feel is as important as anything else. That’s why I love the campaign that you guys are doing as well around MoneySure. It is about the practical steps, but it’s also understanding that you’re not alone and there is support available out there.

I often find that when we’re in that fight or flight scenario, having some kind of gratitude diary can just be really supportive of how you’re feeling about money. Often when we don’t talk about money because it’s still quite taboo, and then it just makes you feel even worse. So reaching out to people is really important and being around people in a similar situation.

This is why we talk about these kinds of subjects here, because feeling positive with your money and your mental health is just as important as the practical steps.

Also, if you’re in a situation where money maybe is a little bit tighter than normal, think outside the box a little bit. I mean, sometimes people come up with these amazing ideas in our community: “Oh, do you know what actually I’m really good at video editing!” or “I can create banners on social media accounts” or all these different skills that they have. There’s some great websites like fiver.com and Upwork, where you can just go on and list your services and get a little bit of extra money in.

It’s not always just about reducing your spending, but sometimes it can be about other ways to generate income. We’ve seen businesses completely pivot during lockdown. Sometimes it is about thinking about other alternatives and other solutions.

I agree with that. I understand the government is expecting more new small businesses in the next two years than there has been in the last 10 years. People will sadly move out of their job, or some people will lose their job over this period of time. It’s that point of inflection and reflection where you have got an opportunity to perhaps do something different and look at how you want to make money going forward. As you mentioned with online tools, starting up a business is not as difficult as it was, certainly a very difficult challenge, but not as difficult as it was even two or three years ago.