Debt Market View May 2021

Data-led treatments will remain key to support customers

As we slowly exit lockdown, the economic back drop remains complex but we will start to see the true impact on the wider economy. Data-led treatments and affordability assessments will remain key to effectively support customers.

March saw significant levels of mortgage borrowing and individuals continued to repay consumer credit debt and save more. According to research from the Centre for Economics and Business Research, consumer confidence has risen to its highest level since August 2018*

The economy shrank by 1.5%** in the first quarter of 2021 but looks to be gathering speed from March. Projections suggest that the economy is now likely to rebound strongly this year and through 2022 but there will be many hurdles in the path – Brexit impact (exports to Europe are down), the global impacts of COVID-19, the shape of a post pandemic economy and ways of working.

Our view remains that collections can be more effective than pre-pandemic through greater use of data and insight and more effective customer treatments.

Credit and debt in numbers

£126 average amount saved per month
From commuting - equivalent to £1,386 since the first lockdown began. London employees saved over £3,000 in a year***

£16.2bn additional deposits in March 2021
This means more people are putting money away, higher than the monthly average of £15.2 billion since March last year**

-24% change in outstanding credit card balances
In the year to February 2021, people with affordability have used the pandemic to pay down their debt.

-8.7% economy
Despite more positive economic signs, the economy is still smaller than it was before the pandemic**

£11.8bn net mortgage borrowing
In March, making it the strongest since the series began in April 1993**

4.2m workers remain on furlough
At the end of March, although this is expected to drop significantly in May. A cumulative total of 11.5 million jobs have been supported by furlough

New reports into the financial impact of COVID-19

Both the debt charity StepChange and the Money Advice Trust have published new reports analysing the effect of the pandemic and both make interesting reading. The Money Advice Trust report is based on a poll of more than 2,000 British adults and includes insight from their debt advice lines to provide an understanding into the impact the outbreak has had on those experiencing increasing financial difficulty. Some of the key learnings include:

  • 11% of adults have fallen behind on one or more essential household bill
  • The proportion of unemployed callers to National Debtline rose from 34% last March to 42% by December
  • One in five adults are worried their finances will never fully recover from the outbreak

The StepChange report, based on a YouGov survey of almost 3,500 adults, reveals some worrying statistics which are likely to affect debt recovery further down the line, including:

  • Over 10m are showing signs of financial difficulty and 2.4m are in problem debt
  • 1 in 4 who accessed a payment holiday are showing signs of being in problem debt
  • 7 in 10 of those in problem debt have a vulnerable characteristic (in addition to financial difficulty)

Both reports resonate Indesser's research findings earlier this year, showing an uneven financial impact of the pandemic.

Government changes on Debt Relief Orders come in to place

The government published changes to the criteria to access a debt relief order after reviewing 148 responses to the consultation. New regulations will be introduced at the end of June. The biggest change in the consultation is to the level of surplus income. The consultation originally proposed a surplus income level of £100, which has now been reduced to £75 after this divided opinion in the responses. This looks to be a sensible compromise enabling debt repayment rather than write off for people with surpluses of £75 per month or more.

Debt advice market consolidation as PayPlan and Tully merge

Tully, OpenWrks, PayPlan and PayLink are merging with the aim of creating a new tech-enabled debt advice, financial wellbeing and credit solutions group. They hope to improve innovation of digital tools and services for the debt advice sector.

Market consolidation in the debt advice and debt solution sector isn’t something new - prior to the pandemic many commercial debt management and personal insolvency firms merged. We expect other organisations will look at mergers or building shared services.

Money and Pensions Service​ £2.4 million pilot for people in mental health crisis

The Money and Pensions Service has a new pilot to help people in mental health crisis avoid worsening debt problems, as part of its increased funding for debt advice in 2021/22.

The pilot will be run by the charity Rethink Mental Illness over the next 12 months, and is expected to support around 6,300 people living with severe mental health problems to apply for breathing space from their debts.

This is an inititiave which has our full support here at TDX Group. In 2020 we launched our own initiative to regonise the impact debt can have on mental health. Called V+, this service offers clients a more specialised approach to debt recovery, using agents who are uniquely qualified to deal with all types of vulnerability.