Mortgage and consumer credit holders are becoming increasingly concerned about how they will manage their loan repayments if they are furloughed or lose their jobs as the coronavirus crisis persists, a debt counselling organisation has said.
According to the Guarantee Foundation, for the most part, borrowers had been able to ride out the first six months since the start of the coronavirus epidemic due to six- to 12-month loan repayment holidays granted by banks earlier this year.
Additionally, many households’ financial prospects appeared to improve during the summer as furloughed workers returned to work and the threat of deep job cuts appeared to recede.
"The extensive mortgage repayment reliefs granted by banks during the spring also provided debtors with a great deal of flexibility," Foundation development manager Minna Markkanen said.
"It definitely helped many through the spring, but the question remains what happens with mortgage loans if the six-month payment-free period ends," she added.
Payment defaults lag, but already visible
According to the latest data from the consumer credit tracking firm Asiakastieto, between the end of June and the beginning of September, 2,300 registered payment defaults. The total number of consumers with past-due bills now stands at 392,000.
Asiakastieto business director Jouni Muhonen said that the number of people having trouble keeping up with their bills has grown slightly, as expected.
He attributed the recent increase in payment defaults to a reduction in the interest rate cap on consumer credit earlier this year.
The halving of the interest rate ceiling made credit cheaper but it also reduced the number of credit providers, making it difficult for many people to borrow during the Covid-19 crisis.
Indebted households that have trouble getting more credit can quickly fall apart, he noted. Additionally, furloughed workers who find it difficult to get short-term loans to shore up their finances can easily run into difficulty.
"And of course the impact of corona will begin to show in payment defaults if people are temporarily laid off and then lose their jobs. If their earning levels drop, not everyone will be able to continue paying their debts," Muhonen pointed out.
He predicted that by the end of the year the number of defaulters will rise further, because missed payments usually show up after some delay.
Fear of foreclosure
Meanwhile new data from the Foundation suggest that unemployment is beginning to rise among its customers. The organisation said that many people who have recently called for advice have had questions about their mortgages.
"They have been wondering what will happen if the situation continues and for example furloughs become retrenchments, whether they might perhaps have to give up their homes in order to pay these loans," Markkanen explained.
"Will they then have to sell their homes if there is no other way to repay the debt?"
She called on mortgage holders to seek professional advice in good time, either from the Foundation’s advisory service or from a legal aid office's debt and financial advisor.
"If your income falls and you have unpaid debts, the first thing would be to sit down with a professional and think about which debts should be paid first," she advised.
Because the current situation is so uncertain, Markkanen said that she would urge people in tough financial circumstances to try and anticipate a future shock by possibly trimming their expenses and trying to build up a savings buffer.
"If this situation -- a second wave of corona -- leads to a similar kind of situation as last spring, it would be worthwhile to think how your finances could withstand it and consider survival mechanisms at this stage."