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In Focus Risk
Credit struggle
New analysis: one in three adults struggle to access credit – with millions more at risk
Alastair Douglas Chief executive, TotallyMoney
Just over one in three UK adults may struggle to access credit from mainstream lenders, according to our data – an increase of 50% in just six years. There are also nearly nine million more at risk of falling into this category – meaning half of the population in total, as the cost of living crisis worsens. The new fi gures show that 20.2m are
‘fi nancially under-served’ – those who fall between the cracks of high-street lenders due to limited credit history, blemishes on their credit fi le, or low or volatile incomes, such as those who are self-employed or part of the gig economy. This near-prime group, holding near-prime credit cards with a higher APR, has risen from 13.6 million in 2016, with the pandemic and the cost of living placing additional strain on people’s fi nancial health. On typically lower gross personal incomes
(circa £27,000 p.a.), they have lower savings to call upon, are more likely to feel out of control of their fi nances, and have seen a deterioration in what they can aff ord. However, those on higher incomes are now tipping into the ‘fi nancially fragile’ group. A quarter (24%) of those with a gross personal income of up to £59,000 would use credit to pay an unexpected £300 bill in the next 12 months, and 8% would even need to ask family and friends for help. In the same bracket, 17% admitted they have not been able to aff ord things in the last 12 months that they could aff ord before. The fi ndings show the underbelly of a
broken market – and it’s too big a problem to ignore. An alarming rise in the under-served group, and millions more treading water, is not just a symptom of the pandemic and the worst cost of living crisis in a generation, it is also because the credit market is archaic; built to keep data in the hands of companies, not
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the people it belongs to. It is then those who are the least cushioned who suff er the most. Not only do they struggle to access the credit they need, but the system shuts them out, leaving them with precious little option but to turn to high-cost, short-term borrowing. When they can borrow, it is often with a higher APR, which simply adds fuel to the fi re. The fact is, we need a credit market that
serves a new economy; one in which spending habits have changed and where, quite rightly, regulation has bought about the demise of pay day loans which exploited the most vulnerable in our society. The fi rst step to addressing this is cross-industry collaboration: credit reference agencies, lenders and fi ntechs who can champion fi nancial momentum. Brushing under the carpet is no longer an option.
Simon Westcott, strategy and UK fi nancial services lead at PwC UK, said: “There is no doubt that the long tail of the pandemic plus the rising cost of living has put a signifi cant strain on people’s fi nancial health, which has contributed to approximately 20.2 million adults struggling to gain credit from mainstream lenders. “This plus the fact that this population
has grown by 50 percent in the last six years, demonstrates how important it is for the fi nancial services industry to take steps to support the underserved. “We saw how fundamental the Financial
Services industry was during the pandemic, supporting small businesses and providing breathing space for homeowners, and here too there is an opportunity for lenders to enhance existing propositions and deliver new solutions that truly meet the needs of this big and diverse segment of society.”
www.CCRMagazine.com
There is no doubt that the long tail of the pandemic plus the rising cost of living has put a signifi cant strain on people’s fi nancial health, which has contributed to approximately 20.2 million adults struggling to gain credit from mainstream lenders
Financially under-served Lasting impact of the pandemic: the data indicates that the pandemic has had a lasting impact on income for a signifi cant group of people. 11 million adults – or one in fi ve adults – have had their personal income impacted by the pandemic and do not expect it to recover in the next two years. This group is more at risk of entering fi nancial diffi culty, particularly those with lower gross personal incomes (31% earn less than £15,000 p.a.). Since the start of the pandemic, household savings have risen, and outstanding balances of unsecured debt have fallen and are not expected to recover to pre-pandemic levels until beyond 2025. However, this picture at the aggregate level masks the fact that some households have had to run down savings and increased their debt levels since the start of the pandemic. Increasing cost of living: the data also
showed that around three-quarters of adults in the UK are worried about the rising cost of living and 43% have already had to adjust their budget as a result. PwC expects that
May 2022
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