Martin Lewis warns Government against ‘catastrophising’ workers’ finances
Workers may endure a catastrophic impact on their finances and end up permanently worse off if they cannot access short-term support to get through the coronavirus pandemic, consumer champion Martin Lewis has told MPs.
The MoneySavingExpert.com founder said it would be “short-sighted” of the state not to support people, who may work in sectors such as hospitality or travel, who were perfectly financially independent before the pandemic struck.
Mr Lewis was being asked by MPs on the Treasury Committee about coronavirus support measures such as the furlough scheme, and those who may not meet the requirements to access certain support.
Mr Lewis told the Treasury Committee the pandemic had produced several categories of people in society, including some who had found themselves better off.
He said a group that needed to be focused on “is the people who were able to support themselves before, who were perfectly financially independent without mainstream support from the state, who were in businesses and sectors like travel or events or entertainment or hospitality”.
“And who solely because of this pandemic are not able to support themselves,” he added.
“And my concern is it would be short-sighted of the state to provide them with no support at all, so they continue to languish, and they move into that category of people who will permanently be in financial trouble and permanently need to be a burden on the state.”
Mr Lewis continued: “We need to get people over this hump, and then back to their jobs, back working, back paying taxes, back contributing to society.
“That is why this excluded group is so important, because the vast majority of them were perfectly financially self-sufficient before and will be again in the future.
“But we may catastrophise their finances if we don’t give them support in the short-term.”
Mr Lewis also warned that the number of “mortgage prisoners” could be set to spike.
Current mortgage prisoners tend to have had loans with now-defunct lenders which were sold on to professional debt buyers with no other mortgage products, leaving them trapped on high interest rates.
There are an estimated 250,000 mortgage prisoners, but Mr Lewis said he would not be surprised if the total was several times this in around 18 months’ time.
The numbers could be pushed up by people whose buildings have cladding and they are struggling to get mortgages due to safety concerns; and by people who only have small deposits at a time when low deposit mortgages are harder to come by; as well as by people impacted financially by coronavirus who may be unable to pay their mortgages after they have had six-month payment holidays, he said.
“We’ve got 250,000 mortgage prisoners now, but I dread to think how many we will have in a year-and-a-half,” he said.
“It wouldn’t surprise me if it was four or five times that number.”
Mr Lewis also expressed concerns about overdraft charges and buy now, pay later schemes.
Overdraft providers have been told by the Financial Conduct Authority (FCA) that they should provide borrowers who are still struggling due to coronavirus with support which is tailored to their needs.
But Mr Lewis said he was concerned that targeted help was discretionary and could depend on which lender someone was with.
He said it was important to make sure there was not a “lottery of treatment” within the targeted support.
Mr Lewis described overdrafts as “the worst form of high street debt” as many rates were now clustered around 40%.
He also said there was an “explosion” of buy now, pay later schemes, many of which were aimed at younger adults.
He said he was aware the regulator and the Government were focusing in on the issue but added: “My issue is just like with payday loans, it will be too late. We are in the explosion of this form of credit today.”
He said: “I would call for maximum speed to move this into the regulatory environment …
“Our political classes have failed if we regulate in two years’ time – two months’ time would be alright.”