A bleak winter awaits certain UK consumers as they struggle with stubbornly high-interest rates alongside a shifting and unpredictable energy cost crisis. As a result, there is an impairment in the ability of UK consumers to pay in a timely manner, which has resulted in an ever-increasing arrears crisis.

The UK finance industry has seen an increasing level of mortgage arrears and an increasing rise in credit card indebtedness. The question is, how will UK regulators ensure that the Consumer Duty will be fit for purpose now it has been fully implemented? The duty needs to work for both parties, in that it can provide a stable UK finance industry, meaning lenders will not flee the consumer market and focus on corporate only. At the same time, it allows consumers to have sufficient tools to provide them with the much-needed protection required in this turbulent and unpredictable economic period.

According to Pepper Advantage, a global credit intelligence company, there is a reported 23.3% annual increase in the arrears rate in the 3rd quarter of 2023. This is an unwelcome and concerning turn of events. “The growth in the arrears rate follows successive increases in the percentage of mortgages that experienced a Direct Debit Rejection (DDR). A direct debit instruction is processed by a creditor, but there are insufficient funds in the borrower’s account (Credit Connect)).

Rates are now at a 15-year-high post the Trussonomic era. Many of these rate rises have not yet filtered through to the many that still benefit from fixed rates. Recently, the press speculated that rates may steady in February, but that is little comfort to those that may find themselves on a variable rate of 8% or more.

Consumers should therefore interact with their current funder, to ensure they have the best deal and with the Consumer Duty both parties can agree a mutually acceptable funding solution.

With inflation remaining high notwithstanding a recent drop and a slow rate of growth in the UK economy, domestic finances will remain challenged in the coming months.

However, many IFAs have noticed the immediate effect of the Consumer Duty. The underlying narrative suggests that funders will do all they can to help existing borrowers and will adopt a light touch approach to financial scrutiny. That is very different with new customers. They can expect to be subjected to a vigorous affordability test.

Energy payment pressures

To the continuing frustration of UK consumers, energy bills are remaining a struggle for many UK households. UK press releases suggest that one in four people with energy debts (24%) are currently unable to repay, added to this, the British Chamber of Commerce suggests 47% of UK small SMEs are struggling to pay energy bills.

OFGEM, the regulator and National Debt line are urging customers to seek help, engage with energy providers and reach mutually beneficial repayment plans. National Debt line, the free debt advice service, is leading a coalition of 13 organisations calling on the Chancellor to introduce a ‘Help To Repay’ scheme in the Autumn Statement.

Opinum the data research specialists for the energy sector have garnered some alarming statistics, which include:

  • 22% of UK people have cut back on food to keep up with energy payments;
  • 9% of UK people have sold personal possessions to pay for energy;
  • 7% of UK people have used their overdraft;
  • 4% have turned to high-cost credit.

One in four people have said they are regularly losing sleep due to worrying about paying their energy bills.

All of the above is not lost on UK energy providers, many of whom are working tirelessly to make the transition to renewable energy and the ability of the UK to reach energy independence. However, further interim assistance from the UK government may be required to afford Consumers and providers with a platform to make that transitional change.

Concluding thoughts

High-interest rates, by their nature, stifle consumer spending and economic growth. Consumers and funders can use the principles of the Consumer duty to deliver outcomes that hold Consumers free from harm. Equally, the government must show its intent to support UK consumers, funders, and energy providers with cogent legislation and grants, without this, economic growth will remain impaired.

Get In Touch

Eddie works with a highly skilled team to deliver industry-specific advice to the asset finance and leasing sector.

Eddie and his team advise clients on a wide range of issues concerning leasing, hire, consumer credit, the FCA sourcebook and the regulatory landscape affecting the UK finance and leasing sector.

His team act for a wide range of both captive and non-captive funders including manufacturers, banks, leasing companies, brokers and dealers within the UK asset finance and automotive sectors.

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Published: 23rd November 2023
Area: Debt

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