Businesses are flocking to apply for lifeline cash in order to cope with the second national lockdown as banks face a fresh flood of loan applications.
UK lenders have so far dished out more than £60bn under the Government’s coronavirus loan schemes, which were due to close at the end of this month but have been extended to the end of January as a result of the current four-week lockdown.
Taxpayer-backed NatWest said applications are now as high as they were in June, while a third of its borrowers who have already received money from the hugely popular Bounce Back loans programme could be eligible for a top-up.
The scheme, which is fully guaranteed by the Treasury, gives small business access to loans of up to £50,000 that are interest-free for the first 12 months.
The UK’s biggest high street banks are not taking on any new business customers as they fight a backlog of existing applications for Bounce Back loans.
However, after the deadline to apply for the scheme was extended last week lenders were urged by Treasury officials to open to new customers as soon as it was operationally possible, sources told the Financial Times.
Digital bank Starling, which is still accepting applications for new business accounts, said it was seeing “strong demand”.
The rush for additional borrowing adds further to banks’ fears that they will be cast as villains if they are eventually forced to demand the money back from entrepreneurs whose companies are destroyed by coronavirus restrictions.
Bank executives have been talking to Treasury officials for weeks about how to keep their reputations intact when the time comes for them to start chasing debts.
So far Covid support schemes including furlough have cost over £100bn.
Watchdog ready to bite
Nikhil Rathi, the new boss of the Financial Conduct Authority (FCA), told MPs last week that the watchdog would stepe in if banks treat customers unfairly. He said: “If we are seeing activity which we believe is inconsistent with our rules, we will be supervising that closely and we will intervene.”
There are also concerns that when furlough and other support schemes end there will be a legion of people unable to afford their mortgages, hurting house prices and resulting in bad loans piling up.
Mark Arnold, chief executive of Kensington Mortgages, said his firm was seeing huge demand for cash from people trying to buy homes before stamp duty holiday expires in March.
However, it has also hired an extra 40 support staff, adding 8pc to its workforce, to help customers who are struggling financially to agree viable repayment plans.
Mortgage approvals hit a 13-year high in September as demand jumped in the wake of the stamp duty holiday.
Mr Arnold said he is worried that any additional extensions to mortgage repayment holidays next year will result in even more bad debts. “I just don’t think it’s financially viable for the customer, or for the bank ... where it’s obvious that they have no affordability,” he said.
Last weekend’s surprise proposal from the FCA that it will allow homeowners to extend repayment holidays for up to another six months left banks scrambling to answer queries from anxious customers before they had received full details from the watchdog.
The boss of one lender said: “Providing clarity to customers means we have to understand it. Systems and processes have to be built. That does not happen in two days.”