- 4.4% of UK population1 considered to be financially vulnerable, up from 2.7% in 2020
- Number on Individual Voluntary Arrangements (IVAs) predicted to rise 7% this year
- For four in five people already on an IVA, April’s 54% energy price hike is enough to trigger a repayment review, as disposable income drops dramaticall
- TDX Group calls on credit industry to put down a ladder for those worst affected, while debt advice provider PayPlan warns of need for debt advice amongst all income groups
London, 26 May 2022 – The number of people classed as ‘financially vulnerable’ has risen from 2.7% to 4.4% of the population since the start of the pandemic and continues to rise as the cost-of-living crisis intensifies. That’s according to new research into 13 million consumer debt profiles1 conducted by UK leading debt recovery specialist TDX Group, an Equifax company, which warned of flashing lights on the financial difficulty dashboard at this week’s Market Pulse webinar.
The new report, titled: ‘How the Pandemic Changed Consumer Debt Profiles’, examines 13 million debts held by UK consumers and raises a number of red flags around the impact of the pandemic on consumers at the lower end of the income scale, as well as the likely consequences of further pressure from the rising cost of living.
In the early days of the pandemic, the full force of the economic shock was muted by Government support measures designed to prop up household finances. Three quarters (74%) of UK consumers reported that their incomes had either increased or stayed the same during the first 9 months of the pandemic, and 51% were actually saving more each month*. A significant minority however were already showing signs of struggling, with one in six (16%) reporting at this early stage that they had fallen behind on priority bills such as council tax*.
As of the end of last year, the amount of debt consumers are paying down was decreasing, however, there is more and more concern that people may fall behind on bills and into arrears on loan repayments. TDX estimates that the number of people on Individual Voluntary Arrangements (IVAs), an agreement with creditors to pay all or part of an outstanding debt, will rise by 7% in 2022, although this could reach 11%.
For those already in a formal debt recovery process, pressure is also increasing. Their disposable income has fallen 11% during the pandemic, with 27% also reliant on benefits. April’s energy price rise1 of 54% was enough to push the vast majority of these people (81%) over the 15% change in disposable income required for an Insolvency Practitioner (IP) to reassess a consumer’s circumstances, meaning four in five would now likely be eligible to hold a meeting to review their repayments.
Phil McGilvray, Managing Director of TDX Group, an Equifax company, said: “The pandemic has left deep scars on the UK economy, and now, as the cost-of-living crisis intensifies, household finances are set to get worse before they get better. As more consumers are driven into debt, more will ultimately end up relying on an insolvency solution, so it is becoming increasingly important that this group is adequately supported.”
Speaking at Equifax’s Market Pulse event, Rachel Duffey, CEO of the debt advice provider PayPlan added: "The number of people coming to us for debt advice rose during the pandemic, and continues to do so as the cost of living crisis intensifies, but there is one cohort in particular that we haven't seen in such numbers since the last financial crisis in 2008. Higher earners, those with a household income of £60,000 or more, are increasingly coming to us for help. 13% of new customers who come to us are in this group, which is really quite unusual, and a figure we expect to grow."
The Office for Budget Responsibility's forecasts that the cost of servicing mortgages, credit cards, and personal loans will rise by 52% over the next two years2. Households debt servicing is already at £55 billion for the fiscal year 2021-22 and expected to rise to £83 billion2 by 2023-24. That averages out at £1,000 more for each household as families spend nearly 5% of their disposable income on debt. The last time debt servicing costs were this high was in 2008-09, following the credit crunch and global financial crisis2.
Phil McGilvray continued: “Demand for credit is rising, financial vulnerability is rising, and more and more people will not be able to make to keep up with their debt payments. With more choppy waters on the horizon, we must ensure we are putting a ladder down for the most vulnerable in our society, so they can climb back out of difficulty safely.
“For our clients, their customers, and the whole credit industry, our data solidifies understanding that every billpayer’s circumstances will have changed, and we need to aid them as more and more become financially vulnerable. The same applies for businesses at the other end of the credit journey; across all sectors, from banks and building societies to telcos, utilities, and motor finance providers – now more than ever it is important to have the best available data to make responsible credit decisions.”
NOTES TO EDITORS
1 Data gathered on 13 million consumer debt profiles over a 48 month period between 2018 and 2021. These are debt profiles (sometimes referred to as accounts), not individual consumers. It is possible for a single consumer to have more than one debt profile in the data set. Some inbuilt biases are unavoidable due to the nature of the data, which was sourced from customers seen by TDX Group, a debt recovery specialist. The conditions of data capture would suggest a slight over indexing of customers in more vulnerable financial situations.
2 2022. [online] Available at: <https://www.theguardian.com/money/2021/oct/19/british-households-will-be-1000-worse-off-next-year-thinktank-warns> [Accessed 16 May 2022].