Access to support “becoming more urgent” as borrowing levels remain high

The Bank of England has today published its latest Money and Credit figures showing consumer credit growth remained at 5.7 percent in May 2022. The annual growth rate of credit card borrowing and other forms of consumer credit was 11.2 percent with outstanding balances for consumer credit now standing at £202.2 billion.

Research from the Money Advice Trust, the charity that runs National Debtline and Business Debtline, showed that in March, just one in five UK adults (20 percent) felt prepared to deal with rising costs.

With the cost of living continuing to rise, the charity says the high level of consumer credit may be a warning sign of a burden of debt for struggling households further down the line.

Jane Tully, director of external affairs and partnerships at the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said: “Today’s figures, showing a continued high level of consumer credit borrowing, are a worrying sign of the continued strain on UK household budgets.

“At National Debtline we regularly see people relying on credit to cover essential costs such as food, energy and council tax – more often than not, it is a sign of financial difficulty.

“With consumer credit borrowing growing over the last 12 months, and rising costs showing no sign of abating, there are real concerns struggling households will find it difficult to repay when the time comes.

“While the Government has introduced welcome support to help with rising costs, accessing this support is becoming more urgent for people who are having difficulty meeting their basic costs.

“I would encourage anyone worried about their finances to contact a free debt advice service like National Debtline as soon as possible.”

Payl8r calls for open banking to become a legal requirement for credit assessing the affordability of loans to borrowers

Millennial buy now, pay later (BNPL) finance firm, Payl8r, is calling for the adoption of open banking as a legal requirement for credit assessing in the same way that credit checks are, to ensure safer lending for borrowers in the face of rising costs of living.

Open banking technology connects banks, third parties and technical providers, enabling them to exchange data simply and securely to the benefit of the customer and provides vital information to ascertain whether they can afford a loan.

BNPL lender, Payl8r, has been regulated since it launched and already uses open banking at the point of application.  While it acknowledges the challenges and costs of using this technology, as a trailblazer in the use of open banking, Payl8r is now urging other BNPL providers such as Klarna, Clearpay and LayBuy to follow suit.

Payl8r believes that other lenders may not be using open banking because the more accurate picture of a consumer’s financial situation and risk level it offers, could mean having to turn down potential borrowers who do not fit the more stringent criteria.

“Our fellow fintechs have a duty to ‘do things differently’ and drive the financial services sector to do better, challenging the way banks and other institutions have operated for years.  Use of credit reference agencies alone is an example of this, especially when open banking enabled approaches are at our fingertips and give us essential insights and guidance to assess individuals’ affordability. As the innovators, fintech BNPLs should be doing everything in their power to improve financial wellbeing and help consumers manage their money, pay off debt, spread costs, improve credit scores and correct credit misuse” says Sam Fogerty Managing Director at Payl8r, a BNPL firm at the forefront of responsible lending.

“I can understand a level of nervousness towards adopting open banking technology but what it takes away by shining a light on an individual’s affordability, it also gives back by finding customers that would previously have been turned down. An individual’s credit worthiness shouldn’t be judged on their past performance alone. It’s an altogether more accurate and responsible way to lend.”

While other lenders claim to use open banking, usually it is only as a means of unlocking more credit after accepting the customer, which is only adding to the problem.

Only last week, the Financial Conduct Authority (FCA) contacted over 3,500 firms, including retail banks and credit firms, in a ‘Dear Chief Executive’ letter urging them to give greater support to all borrowers including those in financial difficulty in the face of the rising cost of living.

Samantha continues: “Currently we use open banking for credit assessments on 100 per cent of returning customers and then we aim to reassess the customer through the lifetime of their loan.  We also use it on 60 per cent of new customers and our ambition is to raise this to 80 per cent, but we can’t do this until other lenders start adopting this model of working.  Once adoption for this technology increases, we would like to use open banking on 100 per cent of our customer base.

“While we are facing tough times ahead, it might be that the cost-of-living crisis leads to the mass adoption of open banking and more responsible lending.”

StepChange calls for pause on UC deductions for Government debt during CoL crisis

Suspending deductions from Universal Credit for Government debt would help plug the gap caused by the shortfall between the Government’s support measures and wider price increases for over a million low income households, according to new research revealed today by StepChange Debt Charity.

The effect of deductions is especially pernicious due to the rising cost of living. The Government has already suspended deductions for ongoing energy usage because of the risk that these repayments will cause hardship. However, StepChange evidence suggests the impact of rising costs make deductions for Government debts a major risk for households on low incomes.

StepChange clients on Universal Credit are set to face an average monthly budget deficit of £77 come October even with Government support. The average deduction for advances and overpayments is around £50 a month. StepChange is therefore calling on the Department of Work and Pensions to pause deductions for these debts until benefits are uprated next April. Suspending deductions doesn’t require legislation, and could be implemented quickly, the charity says.

This pause would allow the Government to reform the system of deductions for overpayments, so it is better aligned with the ability of claimants to cope with repayments. StepChange’s new research, based on its clients, shows that 49% of those not in work and experiencing deductions from Universal Credit for previous overpayments have a negative budget – meaning their income is not enough, even after debt advice, to meet their basic essential costs. This is a rate 50% higher than among StepChange clients overall.

Despite the extreme hardship often faced by people not in work and relying on Universal Credit, they can face deductions of 15% for non-priority debts like overpayments. Claimants who are in work can face an even higher 25% deduction, even though they may only be working a few hours.

StepChange research found that nearly two in five (38%) clients earning less than the UC work allowance (for those not in receipt of housing support) of £573 are in a negative budget situation. A 25% deduction for these households is almost certain to leave them struggling to afford day-to-day essentials and may force them to borrow money to get by.

StepChange says rates of deduction for overpayments are at the Government’s discretion, so they could be amended without legislative change. If Government paused deductions, this would allow time for a more fundamental review of how deductions work, as they were problematic even before the rise in the cost of living. The charity makes three long term recommendations:

  • End overpayment deductions for out of work claimants and those on low income
  • Reduce the maximum rate to 5%
  • Link deduction rate to earnings, incrementally increasing towards 5% as a claimant’s earnings increase

Modelling suggests that, among StepChange clients, among those aged over 25 these changes would reduce the proportion of out of work single claimants in a negative budget by a quarter, and for couples by nearly a third.

StepChange Director of External Affairs Richard Lane said: “The principle that debts owed to Government should be repaid when it’s affordable for people to do so is not in question, but now is a time for a pragmatic pause. Among our clients, around half of those relying on Universal Credit and subject to deductions for overpayments are unable to make ends meet.

“The Government has an opportunity to plug the support gap for over a million households by putting these deductions on hold until benefits are uprated, and taking the opportunity created by the pause to rework deductions into an affordability framework that fits better with best practice in debt advice. We think that’s a sensible response to mitigate how the cost of living crisis is playing out among low income households reliant on Universal Credit.”

The Money Stats – June 2022 – Heavy Wage Falls Exacerbate Steepling Cost of Living

Wages falling at record levels are pushing ever more people into financial distress as living costs continue to skyrocket, according to the June 2022 Money Statistics, produced by The Money Charity.

With average wages falling at the fastest rate in twenty years (since records began in 2001), pay growth is falling far short of keeping up with the steepling cost of living. This shortfall is coming about despite record numbers of job vacancies and very low rates of unemployment.

In real terms, for the year to April 2022, regular pay decreased by 3.4%, while total pay fell by 2.7%. However, after adjusting for inflation, currently at the highest rate in 40 years, annual growth in regular pay, excluding bonuses, has fallen by 4.5%, or including bonuses, by 3.7%.

With the annual inflation rate at 9.1%, recent research has shown that some families are actually experiencing faster inflation than official figures have indicated. One report has calculated an annual rate closer to 13% for the average two-child household, meaning families with two children are on average paying an extra £400 a month just for essential goods and services.

Meanwhile, Citizen’s Advice are reporting that they are seeing the highest proportion of their clients with negative budgets, meaning they have more essential spending going out than incomes coming in, since their records began at 46%.

Another cause for concern is the rises in homeowner property repossessions, which are moving up closer towards their pre-pandemic levels. The government’s moratorium on these during the pandemic will have eased this concern for a time, but with this now lifted, rates are rising. UK Finance estimated that there were 580 UK homeowner properties repossessed in Q1 2022, up from 200 in Q1 2021. This total equates to 6.4 properties being repossessed every day, or one every 3 hours and 43 minutes.

Michelle Highman, Chief Executive of The Money Charity says: “One of the fundamental Financial Wellbeing learnings we help people engage with in our Workshops, Webinars and Resources is how to best manage your income and expenditure. Thinking both those things through carefully and honestly to find the best way to make them balance is a cornerstone of good money management. In the current financial circumstances however, these simple methods are becoming ever harder to harness, with people across the UK seeing the cost of even their most basic necessary expenditures rising rapidly, while their incomes stagnate or lag far behind this rate of change.

“The scenario means more and more people will struggle, while some may be forced to make starker spending choices, others may opt to take on more work beyond their capacity, still others will quickly find themselves in severe difficulties and financial distress. It’s a deeply challenging time and we continue to call on those who can affect change to keep doing so. Meanwhile, for anyone finding themselves in difficulties, or seeing it coming, we’d urge them to seek out the many free advice and support sources available sooner, rather than later.”

Other Striking Numbers from the June Money Statistics:

  • 8/10 workers who had to work at home during the pandemic say they plan to continue with hybrid working now that restrictions have ended. (P4.1.)
  • The number of people unemployed in the UK fell by 973 per day in the twelve months to April 2022. (P20.)
  • 63% of people from ethnic minority groups have seen their cost of living negatively impacted by the pandemic, compared to 59% of all UK adults. (P4.1.)

Rising Interest Rate, Inflation Forecast and FCA Calls for Care

Spiralling inflation, which is set to continue into the Autumn with utility prices set to rise, saw affirmative action by both the Bank of England and FCA designed to address the rising cost of living and support people struggling to meet their payments.

The FCA has written to more than 3,500 lenders stressing the need to support people. As well as helping existing customers, the regulator highlighted the importance of ensuring that lending decisions take account of the financial pressure people may face due to inflation, which is expected to keep rising.

While the Bank of England interest rate increased to a 13-year high of 1.25%, the rate is widely expected to increase further. While such a move may not impact existing fixed-rate finance agreements, the cost of finance for new borrowers is likely to rise as money costs rise. At the same time, as people’s disposable incomes are eroded by rising costs, default levels are set to increase, something the Bank of England has already forecast for unsecured loans.

Commenting on the recent developments, Chris Rowthorn, Director of Motor Sales Operations at MotoNovo Finance reflects; “The speed and level of inflation is a new phenomenon for many people. It is creating hardship that looks to get worse in the months ahead. As a lender, we are committed to helping existing customers impacted by this trend. At the same time, as the FCA reminder directs, we and all responsible lenders must ensure that essential affordability checking takes account of the accelerating cost of living.

“Classically, the ‘secure’ nature of HP and PCP finance is impacted less than unsecured loans by the type of economic ‘shock’ that we are witnessing, as seen during the pandemic, but nor are we immune from it. At MotoNovo, we are committed to growth and delivering good outcomes for our customers and dealers alike. Against a deteriorating economic backdrop, we will seek to collaborate even more closely with our dealers to create affordable acceptances and in this respect our unique risk-based pricing model, MotoRate’s flexibility is likely to be invaluable.”

Just Mortgages launches panel management partnership with eConveyancer

Leading national broker firm, Just Mortgages has launched a new panel management partnership with eConveyancer to complement the existing offering of its self-employed and new build brokers.

The partnership, which is via Openwork Conveyancing, gives advisers working under the Just Mortgages brand, access to eConveyancer’s panel of more than 70 audited and benchmarked conveyancing firms through its feature-rich platform.

Features available with eConveyancer include DigitalMove, which brings together key stakeholders in the homebuying and selling process, with a quick and easy digital journey. It also provides access to eConveyancer’s Rapid Remortgage which has been designed to make remortgaging just as quick and convenient as a product transfer. eConveyancer also supports multiple languages, enabling customers to access important documentation in the language that best suits them.

Just Mortgages’ brokers will also be able to choose from an enhanced SpicerHaart Conveyancing option called JM Legal. The SpicerHaart system uses the eWay case management tool. This advanced technology also provides electronic quote, instruction and advanced case tracking. The Spicerhaart option includes ten conveyancers on its panel.

Karen Rodrigues, Sales Director at eConveyancer, says: “We’re delighted to launch this new panel management partnership with Just Mortgages. We take a rigorous approach to upholding the quality of the eConveyancer panel, which is closely monitored to ensure unwavering high standards, and this ongoing commitment to consistent service is particularly important in the current environment as the volume of property transactions continues to put pressure on conveyancer capacity. This is especially crucial in new build where time is often of the essence. We know that conveyancing is such an important part of the mortgage process and can play a crucial role in a client’s experience, we therefore continue to invest in the ongoing development of eConveyancer to ensure we continue to enhance that experience.”

Carl Parker, national director of the self-employed division at Just Mortgages says: “Conveyancing is an element of the homebuying and advice process that can cause the most stress and headaches, so we have teamed up with the team at eConveyancer in order to smooth out this process.   At the same time our SpicerHaart offering has also improved.

“This is a valuable expansion of the service and support that our self-employed brokers enjoy as a part of the Just Mortgages family which should make our advice process more seamless than ever. This makes life easier for our brokers and their clients.

“Our ethos is that our brokers are on their own, but not alone, and this is reflected in the training, advice, and guidance that our team provides. We are constantly adding new tools that help them help their clients.”

Comments on today’s ONS retail sales figures for May

“The latest figures from the ONS show that retail sales volumes fell by 0.5% in May 2022 with food store sales down by 1.6% from the previous month as retail sales continue to follow the downward trend seen since summer 2021.

“We are now seeing rising food prices and the cost of living begin to affect consumer spending at all levels of the socio-economic scale. At the start of the year, while lower income households were affected by rising commodity prices and inflation, we saw higher income consumers, buoyed by additional savings accumulated over the pandemic, spending their disposable income on holidays, eating out and high value products. However, we are now seeing those higher income groups also become more cautious and selective on where they are spending, particularly when it comes to big ticket items.

“Retailers are now facing a ‘trilemma’ of challenging trading conditions – rising costs, slowing demand and excess supply. Many businesses overestimated demand and purchased too much stock at the start of the year and have now been left with excess products which they are trying to sell at a heavy discount.

“The ONS data also shows the proportion of online retail sales fell slightly to 26.6% in May 2022 from 27.1% in April showing the stabilisation of online penetration which peaked during the pandemic. Many retailers pivoted during this period and heavily invested in their online infrastructure. However, average online basket values are falling which will signal testing times ahead for pure-play retailers.

“Looking ahead, we anticipate the retail sales over the summer months will remain steady. It is vital that retailers use this time to regroup and focus their attentions improving operational resilience and optimising working capital for what could be a challenging autumn.”

Silvia Rindone, EY UK&I Retail Lead

Paradigm Protect add LV= GI product range to panel

Paradigm Protect, the directly authorised protection proposition – which is part of Paradigm Mortgage Services, has today added the LV= range of General Insurance (GI) products to its panel.

From today, Paradigm Protect member firms will be able to access LV= GI products including Buildings and Contents Insurance and Landlords Insurance for the first time ever, providing a new offering for advisers to their clients.

LV= GI also offers its SmartQuote tool allowing advisers to provide a home insurance quote in minutes. It works by combining data points from various public sources to generate a quote, cutting down on the number of questions advisers need to ask, making the process quicker and reducing the non-disclosure risk.

The insurer offers two buildings and contents insurance products – Platinum and Gold, which provide cover up to £1.5m for rebuilding costs. Accidental damage cover is included as standard with Platinum, customers can choose between £80k or £150k of contents cover, and contents stolen from outbuildings is also included.

Its Landlord Insurance product provides buildings and contents cover for rental properties, with optional extras such as home emergency cover and legal expenses.

LV= also has a dedicated Learning & Development team offering member firms workshops, webinars and specialist training to support them in this product space.

Mike Allison, Head of Protection at Paradigm, commented: “This range of GI products from LV= has only recently become available to advisers and we are therefore very pleased to be able to add it to our panel so that our member firms can access it on behalf of their clients. For too long, clients have often been left to their own devices when it comes to GI, and can be left with inadequate cover not fit for their own circumstances which ends up not living up to expectations when a claim is made.

“Advisers can ensure this doesn’t happen by including GI as part of their full advice proposition and by doing so, not only do they ensure their clients have the right cover, but they can also develop a potentially valuable income stream for many years to come. Providers such as LV= also offer a range of support to get the most out of this sector, and in utilising everything Paradigm Protect has to offer, we can help firms develop a very healthy advice proposition that can make a considerable difference to both clients and the bottom line.

“The FCA has recently highlighted the need for advisers to distribute suitable and ‘fair value’ products. It wants to see a market where customers are appropriately supported in purchasing the correct insurance products for their needs and also when they come to make a claim. The new Consumer Duty rules will drive further focus on to distributing all GI products and we want to ensure we offer the best possible support in doing so.”

Sarah Watts, Head of Intermediary at LV= General Insurance, commented: “We are thrilled to become part of the Paradigm panel and help advisers provide the cover their clients need. We’ve worked really hard to ensure our products have great value and protection, with two levels of cover, but also focused really hard on how advisers can get access to our products with ease. Our five-question quote journey means advisers can spend more time assessing clients’ needs, which we know is so important to ensure they offer the right level of protection.”

BNPL regulation: comment from Robert Flowers, CEO and Founder of DivideBuy

“DivideBuy welcomes and strongly advocates for the UK government’s plans for formal regulation of the $3.7 billion Buy Now Pay Later (BNPL) industry. Standardised affordability checks, FCA approval and clear advertising will ensure that consumers can effectively manage the ‘pay later’ part of the deal and are given peace of mind when entering into interest-free credit plans.

In fact, in the absence of stricter formal regulation from the UK government and the FCA, DivideBuy and many other point-of-sale (POS) finance providers have been implementing such standards for some time to ensure that the consumer remains front of mind, through raising awareness, screening out customers likely to be delinquent and ensuring credit approvals based on stringent affordability checks.

We’re putting the consumer at the heart of our business by choice, not because it’s dictated and we, like others in the space, are committed to driving the change we wish to see in the industry. We do this by ensuring fair, ethical, accessible, fee-free consumer lending practices that work for both consumers and retailers.

Accelerating formal regulation for our industry will ensure that all consumers are given flexible buying power that looks at the individual’s past and present circumstances to gain the clearest possible picture of their financial health. With some companies already avoiding charging consumers late payment fees, the industry has demonstrated that it wants customers to only paying for the goods they want to buy and not the service they’re using to purchase them.

Transparent and clear messaging from the industry has also helped raise awareness of companies such as DivideBuy who offer instalment repayments over longer periods, deposit weightings and payment holidays to ensure consumers can make informed purchasing decisions based on affordability. In fact, existing approval processes in the industry often utilise highly evolved decision engine functionality, AI and rigorous checks to offer an individually tailored agreement which better protects the consumer.

With cost of living expenses increasing and energy and fuel prices soaring, affordable credit, when used responsibly and explained transparently, is a payment method many consumers will inevitably continue to need. Together, with stricter regulation in place, POS finance companies can ensure interest-free credit can be used to benefit the consumer in the most responsible way possible.

We look forward to seeing what the FCA and Government set out as part of their plans for consultation and only wish it was less talk, more action.”

Robert Flowers, CEO and founder of DivideBuy

StepChange welcomes Committee of Advertising Practice enforcement on misleading IVA and PTD ads

Following a series of earlier Advertising Standards Authority rulings against misleading advertisements and websites by Insolvency Practitioners and lead generators for Individual Voluntary Arrangements (IVAs) and their Scottish counterpart Protected Trust Deeds (PTDs), StepChange welcomes the enforcement notice published today [23 June] by the Committee of Advertising Practice and the news that monitoring and enforcement of the notice will begin on 25 July.

There are still far too many examples of poor and misleading advertising that create a real risk of consumer harm. Looking in isolation at those adverts that impersonate StepChange, the charity has previously estimated that up to 15% of people searching online for genuine StepChange help may have been inadvertently routed to other places due to misleading advertising tactics on search engines, social media and through direct marketing. The number of people potentially misled about the ease, suitability, cost or status of IVAs and PTDs in general, not just because of charity impersonation, will be even higher.

Under the new enforcement notice, Insolvency Practitioners and non-FCA-authorised lead generators have been put on alert that advertising industry monitoring will increase, and that there will be referrals for non-compliance to Trading Standards or relevant Recognised Professional Bodies. This is helpful, while also reinforcing the fact that this is a problem that remains far from solved – at the very time that the cost of living crisis may be pushing more people towards being receptive to advertising or websites about debt management solutions such as IVAs and PTDs.

StepChange believes that the Online Safety Bill currently progressing through Parliament is an opportunity that must be seized to cement meaningful protection against online debt scams. That’s why StepChange and other agencies are urging the Government to support amendments to the Bill to legally oblige search engines and social media platforms to prevent fake and fraudulent debt ads from reaching consumers in the first place.

Richard Lane, Director of External Affairs at StepChange, said: “The Committee of Advertising Practice and the Advertising Standards Authority are showing admirable commitment to trying to clean up the squalid market in IVA advertising. However, seeking to monitor and hold to account those who are flouting the rules will be a massive task, as the problems are so widespread and the perpetrators so opportunistic and persistent.

“We encourage anyone who does spot a misleading advert to report it, and we especially urge anyone experiencing financial worries to be vigilant about any advertising that purports to offer easy solutions to debt, or to push you towards one particular solution like an IVA. StepChange and other reputable debt charities would not suggest a solution without a full understanding of your own individual circumstances, and adverts that try to do this are unlikely to have your best interests at heart.”