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UK Cost of Living Crisis Far Worse Than Pandemic Says Plend Report

Households in the UK are in a worse financial position as a result of the cost of living crisis than they were during the pandemic.

Almost a quarter of UK adults are in a worse financial position in 2023 during the cost of living crisis while the number of those struggling to pay back their loans has increased by half since last year.

This is according to the second annual Financial Inclusion report now published by ethical lender Plend. The report focuses on the impact of the cost of living crisis, personal and household finances, and the resultant impacts on access to financial services in the UK.

The findings emphasise how badly some groups, including young people and ethnic minorities, have been affected more by the cost of living crisis than by the pandemic.

The report includes a foreword by Yvonne Fovargue MP, chair of the All-Party Parliamentary Group on Debt and Personal Finance, and supporting comments from debt charity StepChange, the Green Finance Institute, the University of Bristol, Fair by Design and Fair4All.

Ethnicity and poverty factors

The report highlights notable ethnic disparities, with 58 per cent of the black and mixed ethnicity (BAME) community borrowing money because of the financial impacts of the cost of living crisis. For one, this figure is nearly double the proportion of the 30 per cent of white people doing the same.

There are also several examples within the findings that highlight how the cost of living crisis has exacerbated the ‘poverty premium’, the extra costs put on those on low incomes who have to pay for essential products and services.

BAME groups are less likely to be accepted for loans, with 54 per cent of applications getting rejected in the last 24 months, and those who were accepted faced higher-than-average APR rates. This is in comparison to 38 per cent of white people who were rejected from loans in the last 24 months.

Regional disparities

The cost of living crisis has had a differential impact on regions within the UK. People in the North West have been most heavily affected, with 78 per cent saying they are in a worse financial position now than at the start of the crisis, followed closely by 76 per cent of Wales.

This financial vulnerability is in turn affecting people’s well-being, with 58 per cent of Londoners saying their mental or physical health has been impacted.

Lack of access to credit is high, with Scotland having the highest rejection rates, where two in three loans get rejected, while a quarter of Londoners have found it difficult to access financial products.

Young adults and parents

Young people have been disproportionately affected by the cost of living crisis, as 54 per cent of 18-34-year-olds, the most of any age group, have borrowed money to ease financial pressures, in comparison to just over a third who borrowed money to offset the impact of the pandemic last year.

The crisis has also had a detrimental impact on their well-being, with two in three claiming that it has affected their mental or physical health, compared to less than three-in-10 people aged over 55.

It has additionally been found that 56 per cent of the UK’s parents are borrowing money, in comparison to less than a third of adults without children.

Ethical and affordable lending

The cost of living crisis has highlighted issues in the access to fair and affordable credit to Britons, as the number of people who feel they are being locked out of the financial system is increasing year-on-year.

Figures are recorded as being up from 20 per cent of those surveyed last year to 28 per cent this year.

The report suggests that those who do have access to credit are finding it difficult to pay off debt or balances, with 72 per cent of people have struggled at some point to pay off their loans, up 22 per cent from last year’s report, suggesting that financial stability among British consumers is worsening.

Just over one in five feel that they would not be able to access a credit card or loan if they needed money. As a result, 29 per cent of those who were rejected for a loan or line of credit borrowed money from friends or family, and 10 per cent from unregulated lenders.

This year’s report also finds that there is a lack of trust between the public and financial institutions, with only 21 per cent of credit-holding adults believing that loan and credit card companies are charging fair rates. Thirty-nine per cent agreed that if they could access a genuinely low-interest loan, their financial situation would improve; up from 27 per cent last year.

Cutting back on sustainable living

With the end of government-led strategies and initiatives to incentivise green home improvements, the current financial climate is affecting how households in the UK are dealing with the climate crisis.

This includes purchasing decisions and the ability to make environmentally sustainable choices as people are delaying home improvements. More than half the population (57 per cent) can no longer afford sustainable products or make environmentally friendly choices.

Additionally, four out of five homeowners or mortgage payers have delayed upgrading their homes to be more energy efficient, indicating the detrimental effects that the cost of living crisis is having on the decarbonisation of the residential sector.

The ‘Great Credit Divide’
UK cost of living
Robert Pasco, CEO and co-founder, Plend

Robert Pasco, CEO and co-founder of Plend, says that these findings highlight the “mass inequality gaps in our society, exacerbated by the pandemic and the current cost of living crisis.”

“Those who are already struggling to make ends meet are hit the hardest, with many being forced to turn to high-cost credit to meet their basic needs,” continues Pasco.

He adds: “This only perpetuates a cycle of debt and financial exclusion, trapping people in a vicious cycle they can’t escape from, contributing to the ‘Great Credit Divide’.

“We must work together to prioritise financial inclusion and create a society where everyone has access to affordable credit, financial stability, and the opportunity to build a better future for themselves and their families.”

Richard Lane, director of external affairs at StepChange, comments: “Plend’s report brings to light how the cost of living crisis has escalated ongoing issues around problem debt and financial exclusion.

“Struggling borrowers need the government, regulators and creditors to step up to ensure the mechanisms are in place both to catch people before they fall into long-term problem debt and to help people already facing severe financial difficulty.

“StepChange has supported millions of people seeking support with problem debt and continues to do so, ensuring that those who need help can access it,” Lane concludes.

The second annual report
UK cost of living
Plend CEO Robert Pasco and CTO James Pursaill

Co-founded in 2020 by Robert Pasco (CEO) and James Pursaill (CTO), Plend offers longer-term, sustainable loans at fair interest rates for borrowers that are missing out due to traditional credit scoring.

Rather than the traditional system of using credit scores based on demographic data to set interest rates, Plend uses open banking to build a fairer picture of individual financial positions, known as the Plend score.

Plend created the annual Financial Inclusion Report to help highlight the UK’s financial exclusion crisis and those most at risk in society.

This is Plend’s second annual Financial Inclusion Report, following last year’s which focused on the impact of the coronavirus pandemic on household and personal finances. The research was conducted by Opinium Research, with a representative sample size of over 4,500 UK adults, and Plend’s own customer data.

Author

  • Tyler is a fintech journalist with specific interests in online banking and emerging AI technologies. He began his career writing with a plethora of national and international publications.

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