It is no exaggeration to say that, just a few months ago, very few people knew what ‘furlough’ meant. Now of course things are very different, and an estimated 8.9 million UK workers have been furloughed by their employer.
A new report by credit reference agency TransUnion looks at who the typical furloughed employee is, and what impact being furloughed might have on someone’s finances.
The case study used in the report is for an individual with the following circumstances:
- Married, but responsible for all household bills
- Receiving healthy net income per month from employment of £3,732 (pre-lockdown)
- Monthly expenditure is £3,602, so with so little surplus each month, the family typically use savings for big ticket spending and emergencies
- However, the individual in question works as a senior hotel manager and so was placed on furlough earlier this year. His income reduced to around 60% of its normal level (the Government was paying 80% of the first £2,500 of monthly earnings, and his employer did not top up the remainder)
- In spite of his apparently high income, he was forced to pause his mortgage and credit card repayments
- Although he is now working again, his company is struggling, and he is worried about his long-term job security and is considering options such as releasing equity from his home
The report also acknowledges that 45% of respondents in TransUnion’s most recent Financial Hardship survey said their household income hadn’t been impacted by Covid-19. Others said their financial situation had actually improved, perhaps because they had switched to working from home with no loss of income, whilst saving money on travel, socialising and luxury spending.
Brendan le Grange, Head of Research and Consultancy at TransUnion in the UK, commented further on the issue of inequality, saying:
“Younger consumers are more likely to be impacted than older ones. But it’s not just about who is more or less likely to be initially impacted by the crisis, we also need to consider who is more or less well-equipped to weather the storm.
“Here, access to savings is a useful proxy. We asked those consumers who were feeling a financial pinch how they’d try to close the gaps in their budget, and while overall savings are the most common answer, it once again varies with credit risk. Whilst 1 in 4 of who self-report a ‘good’ or ‘excellent’ credit score say they’ll use their personal savings, only 1 in 6 of those who self-report a ‘bad’ credit score feel they have ready access to the same.”
The report goes on to list the loans and bills consumers are most worried about repaying at present. Top of the list are:
- Credit cards (mentioned by 37% of survey respondents)
- Utilities (31%)
- Rent (27%)
- Personal loans (26%)
- Mortgages (24%)
However, Generation Z are most worried about personal loan repayments (33%), followed by rent (32%).
Millennials are most worried about utilities (37%) and credit cards (34%).
28% of Generation X are worried about paying utility bills, but by far the biggest concern in this age group is credit cards (48%).
Credit cards and utilities both score 37% amongst the baby boomer generation, well ahead of all other categories.
The financial effects of coronavirus have led to many borrowers being offered payment freezes. Whether or not someone has been furloughed, lenders will need to carefully consider what additional forbearance may or may not be appropriate when these payment freeze periods end.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article