Brits turn to short-term credit to pay for essentials
The number is slightly up from last year when it stood at 33%. Just under a third (28%) have borrowed from family or friends to resolve financial difficulties, compared to 27% last year.
The findings are part of OpenMoney’s second annual advice gap report: The UK Advice Gap 2020: Are Consumer Needs For Advice And Guidance Being Met?
The report takes a detailed look at the nation’s wealth, debt and the need for advice.
The study of 2,000 British people took place in early March before the worst of the coronavirus pandemic hit the UK. It highlights that many were struggling even before the impact of Covid-19, with the number of households without outstanding debt decreasing from 44% last year to 40% this year.
OpenMoney found the most common way of trying to resolve financial difficulties was to cut back on spending, with more than half (55%) doing this, although this figure has fallen from 60% last year. Similarly, 41% started budgeting more strictly, while 33% dipped into their savings.
Anthony Morrow, CEO of OpenMoney, said: “It is revealing that the number of people cutting back on spending and budgeting more has fallen from last year, while those borrowing on credit and from friends and family has risen. This could suggest there was already less fat to trim in household budgets even before the impact of coronavirus.
“With rising household debt, we are particularly concerned about over-reliance on short-term credit for day-to-day spending, especially new forms of credit like buy-now-pay-later schemes and workplace lending services which make it very easy to take on debt without fully thinking through how you will pay it back or the impact on your credit rating if you don’t.”
OpenMoney is calling for the government to strengthen consumer credit law and align regulation around all forms of unsecured debt to ensure that using this form of debt is a considered action taken with full knowledge of the implications.
It is also urging the government to bring forward the implementation of its ‘Breathing Space’ scheme, which is currently due to be implemented in May 2021. The scheme will allow people with problem debt to freeze interest, fees and enforcement for 60 days while they receive professional advice.
Morrow continued: “Given the vulnerable financial situation of many households, we are also worried about the ongoing impact of the pandemic. While lenders have stepped up with holidays on mortgages, credit cards and personal loans, these debts still need to be repaid at some point.
“When the payment holidays end, customers are likely to face larger monthly payments, or have to pay their debt back over a longer period and potentially paying more in interest, which could drive more people into financial difficulties.”