By Neil Kadagathur, CEO and Co-Founder, Creditspring

Families across the UK have faced an extremely tough couple of years. With multiple lockdowns, widespread unemployment – although this is thankfully now back to pre-pandemic levels – and utility bills soaring, many families are just barely keeping their heads above water. Unfortunately, with rising inflation, the situation is worsening and rising living costs could be the tipping point for many families.

Almost one in four respondents (37%), according to our research into the UK’s financial stability, named inflation as one of their top three financial concerns.[1] Inflation is running at 6.2% and likely to hit 8%, or even 10% according to some estimates, soon; people are understandably anxious. This concern is echoed with 55% of men and 50% of women stating that the rising cost of living is their second biggest financial concern.[2]

Unfortunately, as the cost of living rises much more quickly than wage growth, these worries are well-founded. Although salaries have increased, due to the impact of inflation, the real value of wages has actually fallen 1%.[3] As they struggle to pay mortgages, rent, food, childcare and all the other everyday costs they face, families across the UK are in desperate need of support. It’s up to financial institutions to provide a solution to help, to avoid an economic crisis.

Unfortunately, it is often the most vulnerable members of society who are most at risk when prices spiral. The concern is that many of these individuals will be forced to turn to unscrupulous or unregulated high-cost lenders in order to survive – our research shows that 16% will need to borrow to get through the next few months. For those aged 18-34 the situation is even worse – a third will be forced to borrow.

One solution to support families during the living cost crisis is to develop financial education and boost awareness of affordable credit options. It can help families to pay bills on time and reduce the risk of them falling into a debt spiral. Supporting vulnerable families who are most at risk is vital to our society.[4]

Affordable credit comes in different forms. For some families it will be a series of smaller loans to help build their overall credit score and allow them to make more educated financial decisions in the future. For other families, affordable credit will be one low interest sum that allows them to pay off a bill and food for the rest of the month. But ensuring that the people who need affordable support have access to it is vital.

With energy bills rising 14x faster than normal this year[5], many are going to be forced to turn towards lenders to pay the bills – for some who cannot access mainstream credit, high-cost borrowing may seem like the only option. In the UK, there are up to 15m people who struggle to access affordable borrowing.[6] The cost of credit, however, can vary between lenders. Families in a panic may approach the quickest lender, usually a high-cost one. Borrowing from a high-cost lender can result in families plunging into a debt spiral, which is very hard to get out of. It also has a knock-on effect on their credit reports, which can limit their future credit options – a vicious circle which punishes borrowers. Financial service providers need to actively educate families about their financial situation, as well as all the credit options that are available to them.

The support offered in the recent Spring Statement is welcome at this time, however it isn’t enough. With the rising cost of living, more households are at risk, the Household Support Fund doesn’t go far enough, especially as the process to receive this support appears complex. Likewise, raising the National Insurance income threshold to £12,570 in July is all well and good, however, the NI rise started this month so households across the UK are still losing out – people need support now.

Many experts don’t anticipate the financial pressures on households easing this year, so families will be faced with little option but to struggle through.[7] Families need to be provided with clearer financial guidance enabling them to make the best decisions for their situation – this requires lenders to be upfront and transparent about fees and interest. With the rising cost of living and rise of inflation, many families are no doubt feeling let down by financial service providers, or have even lost trust in them altogether. They need proof that services will work for them, not leave the family in more debt than when they came in.

Unregulated lending, hidden charges, and unauthorised overdrafts have created a world in which families are afraid of their finances and potential hidden costs. But lenders have a responsibility to be clear about costs, and have a duty to support families to pay off debts on a manageable and regular basis.

Unfortunately, this behaviour is not always seen throughout the lending industry. Now is the time for lenders to step up and relieve some of the burden on families.

[1] Creditspring Financial Stability Tracker

[2] Creditspring Financial Stability Tracker

[3] https://uk.finance.yahoo.com/news/uk-basic-pay-inflation-jobs-092034639.html

[4] Creditspring Financial Stability Tracker

[5] https://uk.finance.yahoo.com/news/uk-basic-pay-inflation-jobs-092034639.html

[6] https://www.theguardian.com/business/2022/mar/15/uk-unemployment-covid-inflation-wages-prices-energy-bills

[7] https://www.theguardian.com/business/2022/mar/15/uk-unemployment-covid-inflation-wages-prices-energy-bills