Cost of living showing worrying trends in affordability

Despite a slight improvement since the Coronavirus pandemic, 24% of all UK adults still face low financial resilience, meaning they're either already in financial difficulty, or have no savings to protect them from unexpected bills.

Research by debt charity StepChange has echoed the findings, revealing almost half of all adults are struggling with bills and credit commitments.

While the FCA have already begun urging lenders to provide more help and support to vulnerable and struggling customers, with the additional pressure of high energy bills over the winter, it's clear more help is needed to ease the burden on households.

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1 in 4 in financial difficulty

The FCA's Financial Lives survey interviews over 19,000 people, and is the largest survey of its kind in the UK.

Findings from the latest survey carried out in May, but covering the period of February to June 2022, found as many as one in four adults have low financial resilience, although this has decreased from 27% during the Coronavirus pandemic, to 24% now.

In other words, as many as a quarter of Brits have little or no savings. As a result, they're either already in financial difficulty, or they could quickly find themselves in difficulty from an unexpected expense or bill.

The FCA also found 60% of all UK adults are now finding it a heavy burden or somewhat of a burden to keep up with their bills. This is an increase of 6 million people since 2020, when a similar survey reported 25.9 million were struggling with their bills.

It was also highlighted how people living in more deprived areas of the UK were seven times more likely to be in financial difficulty than those living in the least deprived areas.

Debt problems

The recent findings from the FCA are echoed by debt charity StepChange, who recently reported that the cost of living is now the number one cause of debt for their clients in Scotland.

Most notably, StepChange reported a rising proportion of clients with energy arrears, and that as many of their clients are now struggling with energy bills as with council tax.

In addition, a separate survey by StepChange released in October 2022, found almost half of all adults have been finding it difficult to keep up with household bills and credit commitments in the last few months.

The increase in those struggling over the past few years is also stark, with 15% struggling in 2020, 30% in 2021, and as many as 45% in 2022.

StepChange also previously reported as many as 48% of adults, or 25 million people, say their mental health has been negatively affected by the rising cost of living, with as many as 83% in debt struggling with their mental health.

Consumer protections

The FCA has already taken steps to urge lenders to improve support for vulnerable customers and people struggling with the cost of living.

They've urged 3,500 lenders to increase help for people struggling with their credit commitments including additional help with tailored help depending on individual circumstances and to consider characteristics of vulnerability, and to ensure fees and charges are fair and only cover a lender's cost, among other measures.

These standards come in addition to the Vulnerable Customer Guidelines introduced by the FCA in early 2021.

Sheldon Mills, Executive Director, Consumer and Competition, at the FCA also told consumers, "If you are facing financial difficulty, you don't need to struggle alone. There is free debt advice available, and we have told firms that they must work with their customers to solve any problems with payment."

Yet high cost lending like Buy Now Pay Later is still unregulated, despite as many as 31% of UK customers have missed one of more payments according to research by StepChange and Barclays.

While consumer groups and banks have been calling for market regulation of BNPL, and despite a Government consultation in January 2022 on how to proceed, there is yet no announcement from the FCA on any upcoming changes to the BNPL market.