Financial planning during lockdown
Posted by Kevin Gray 1st May 2020
Bath Building Society CEO, Kevin Gray, reminds of us of the importance of planning your finances for the immediate and long term during lockdown:
At the time of writing this article I am social distancing at home with my two daughters, five dogs and three chickens. Like many people I am filling my spare time doing a myriad of things that I never normally do such as taking part in family quizzes and ‘pub nights’ via Zoom, baking bread (when I can get my hands on flour), reading long neglected books and trying to learn new tunes to play on my guitar. A home Gin Making Kit is also coming into its own which transforms cheap £10 bottles of vodka into wonderful botanically infused gin creations. That is proving to be the best birthday present that my girls have ever bought me. To sample my alcoholic creations, I now just need to source more tonic water which, maybe understandably, appears to be up there with toilet rolls on the panic buyers’ priority lists!
Apart from my new hobbies, the serious day job of running Bath Building Society (BBS) continues. As a provider of a designated key service, our Branches remain open for cash and cheque transactions from 10am to 2pm Monday to Friday and from 9am to 1pm on Saturday. Through a mixture of good contingency planning and an element of good luck, Bath Building Society has managed to transform itself at very short notice into a business where its staff predominantly work from home. Our customer help line remains open 9am to 5pm each week day to handle electronic payment requests and any other enquiries. Our Mortgage department continues to process applications and we remain open for new customers seeking mortgages. Like many businesses that are operating with significant numbers of staff working from their own homes, we are very thankful for the communication and conferencing technology that exists today.
Just as it was a good idea for BBS to have a contingency plan in place to deal with a rapid change in business circumstances, so it makes sense that individuals should get a plan in place for their immediate and longer term finances. There are not many better tasks for us all to undertake during lock down.
The necessary response to the Coronavirus has sadly reduced the incomes of millions of workers and hundreds of thousands of businesses. Everyone who has been negatively impacted by the shutdown needs to think about their finances today and to make plans for their near futures. Most importantly, the ‘head in sand’ ostrich approach must be avoided at all costs, especially when it comes to mortgage loans. Your home could be at risk after all! All mortgage lenders in the UK are currently offering borrowers a three-month mortgage payment holiday. If you are fearful of not being able to make your normal mortgage monthly payments, then I encourage you to speak to your lender as soon as is possible. At Bath Building Society we are offering our borrowers a selection of temporary forbearance measures that includes reducing the capital element of monthly payments, switching capital and interest mortgages onto interest only, taking only part payment of monthly interest or offering complete three-month payment holidays. Borrowers should be aware that interest is still charged during the so-called ‘holiday’ period and that this will be capitalised onto loan balances after the three-month holiday period ends and as such, future monthly payments will likely increase. Those who are still thinking about whether to take a three month payment holiday should be aware that the offer is currently due to run out around 20th June unless the government extends this end date. Borrowers should avoid going into arrears and not wait until that point to have discussions with their lenders as arrears will impact negatively on credit scores whereas prearranged payment holidays will not.
The question arises of what happens when payment holidays and government support for incomes all come to an end. The answer will depend on how the economy responds once the Coronavirus has passed. Hopefully, economic activity will rapidly recover and the country will quickly get back to work. Unfortunately, longer lasting economic damage is a distinct possibility and higher levels of unemployment and business failures may occur. At Bath Building Society we are already planning for what we will do at the end of our borrowers’ mortgage payment holidays which start to end in June. We anticipate that some borrowers will struggle to immediately afford their normal monthly payments and as such, they will have to be ‘weaned’ back towards normality over a much more protracted period by the continuing offer of forbearance concessions such as those previously mentioned above. Not all lenders will offer the same support. I would encourage borrowers to speak to their own lenders again when their payment holidays are coming to an end to gauge what ongoing assistance, if any, will be available to them.
I should also mention that the Financial Conduct Authority has recently announced a three month payment holiday on all unsecured debts such as credit card balances and personal loans. Anyone who anticipates having difficulties making their monthly payments on such facilities should contact their credit lenders.
Across the building society sector, savings balances have remained pretty much stable since the crisis erupted. If anything, there has been a small movement away from fixed term savings such as bonds into accounts that offer instant access. As a response to the virus, by way of concession, all banks and building societies are offering penalty free early access to savings accounts. I would recommend that everyone should consider having an online facility with their bank or building society in case any spread of the virus accelerates branch closures. Bath Building Society has been encouraging its Members to sign up to the Bath Online facility which crucially provides a facility to request electronic transfer of funds from BBS savings accounts to designated bank accounts.
Finally, it is fair to say that those people with savings are most probably sleeping better through this crisis than those who have no savings and who are experiencing a reduction in income. The old adage of ‘saving for a rainy day’ could not be more appropriate than at this current moment. When these bad times pass, and they surely will, I would encourage anyone who has not been a saver in the past to get into the savings habit to protect themselves and their families from future economic shocks. Bath Building Society will be only too delighted if you were to join us as a savings Member. Our Customer Support Team can be contacted on 01225 423271.
Enjoy the lockdown as best as you can….. and please stay safe!