Workers can suffer a catastrophic impact on their finances and end up permanently worsening if they cannot access short-term support to get through the coronavirus pandemic, consumer champion Martin Lewis told MPs.
The founder of MoneySavingExpert.com said it would be “shortsighted” for the state not to support people, who may work in industries such as hospitality or travel, who were fully independent financially before the pandemic hits.
Mr Lewis was asked by members of the Treasury Committee about coronavirus supports such as the leave scheme, and those who may not meet the requirements to access certain supports.
Mr Lewis told the Treasury Committee that the pandemic has produced several categories of people in society, some of whom have found themselves better off.
He said that one group to focus on “are people who were able to support themselves before, who were fully financially independent without general state support, who worked in companies and sectors like travel, events, entertainment or hospitality ”.
“And who only because of this pandemic are not able to meet their needs,” he added.
“And what concerns me is that it would be shortsighted for the state not to provide them with any support, so they continue to languish, and they fall into that category of people who will be permanently financial difficulty and constantly need to be a burden on the state.
Mr Lewis continued, “We have to help people get over that bump and then get back to work, to work, to pay taxes, to contribute to society.
“This is why this excluded group is so important, because the vast majority of them were perfectly self-sufficient before and will be again in the future.
“But we can wreak havoc on their finances if we don’t support them in the short term. “
Mr Lewis also warned that the number of “mortgage prisoners” could increase.
Current mortgage prisoners tend to have had loans with now-defunct lenders that were sold to professional debt buyers without any other mortgage products, leaving them trapped in high interest rates.
There are around 250,000 mortgage prisoners, but Mr Lewis said he wouldn’t be surprised if the total were several times that in about 18 months.
The numbers could be increased by people whose buildings have siding and who have difficulty obtaining mortgages due to security concerns; and by people who have only small deposits at a time when low deposit mortgages are more difficult to obtain; as well as by those financially affected by the coronavirus who may not be able to pay their mortgages after having had six-month payment holidays, he said.
“We have 250,000 mortgage prisoners now, but I’m afraid to think how many we’ll 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 fees and buy now, pay later programs.
Overdraft providers have been told by the Financial Conduct Authority (FCA) that they should provide borrowers who are still struggling with the coronavirus with assistance tailored to their needs.
But Mr Lewis said he was concerned the targeted aid was discretionary and could depend on which lender someone was with.
He said it was important to make sure there wasn’t a “treatment lottery” in targeted support.
Mr Lewis described the overdrafts as “the worst form of public debt” as many rates were now huddled around 40%.
He also said there had been an “explosion” of buy now, pay later programs, many of which were aimed at young adults.
He said he was aware that the regulator and the government were focusing on the problem, but added, “My problem is like with payday loans, it will be too late. We are today in the explosion of this form of credit.
He said: “I would ask for maximum speed to bring this into the regulatory environment…
“Our political classes have failed if we regulate in two years – two months would be good. “