StepChange debt statistics mid-year update

New statistics published today [4 October] by StepChange Debt Charity lay bare the alarming scale and changing nature of problem debt in the UK. They show that 326,897 people contacted the charity for help with their debts in just the first six months of 2018.

Of the 180,644 who received full debt advice and a recommended debt solution, two thirds were under 40, although only one third of the UK population falls into this younger age group. Only 18% of clients were home-owners, against around 62% of the general population. Around half of StepChange’s clients experienced debt because of job loss, reduced income, or health issues.

Below the headline numbers, StepChange is seeing some worrying trends, which should sound alarm bells for local authorities, utility companies, regulators and the Government. The charity is calling on these organisations to urgently address the issues that are currently being experienced by more and more clients.

 

Council Tax

In the first half of 2018, over 30% of new StepChange clients were behind on their council tax – by far the highest category of debt arrears. Almost half (48%) of new clients in the first half of the year with council tax arrears had a deficit budget – with more money going out than coming in – compared to just 30% of all clients. Yet local authorities are more likely than most other creditors to pursue debt aggressively – with potentially hugely damaging results when people simply cannot pay.

Council tax collection practices (and other government debts) are notoriously variable, and poor practice is widespread. The National Audit Office recently observed that practice in government debt collection lags behind the private sector – with overuse of bailiffs far too common.

StepChange is calling on more local authorities to follow the lead of pioneering authorities like Hammersmith & Fulham and Bristol in implementing better, more humane alternatives to seeking repayment of council tax arrears without resorting to bailiffs.

 

Utilities – particularly fuel debts

The proportion of StepChange clients with gas and electricity arrears continues to rise. In the first half of 2018, 13.1 % of all new clients were behind on a gas or electricity bill compared to 11.4% of clients in the first half of 2017.

The rise in the numbers of clients falling behind on utility bills coincides with some companies having already raised prices twice this year. Although some customers may be able to reduce their bills by switching, many people facing financial difficulty may be reluctant to switch even if they are able to, nervous of the complexity of price tariffs and wary of being caught out and being put in an even worse financial position.

Although the forthcoming new energy price cap is welcome, it will not ensure that the neediest households are on the cheapest tariffs. StepChange wants more utility providers to establish flexible repayment schemes, as well as sharing effective good practice on working with people who are struggling to pay to minimise their costs.

 

Short term high cost credit

The proportion of new StepChange clients with short term high cost credit debt – including payday loans – increased in the first half of the year. In 2017, 16.8% of new clients had a high cost short term debt (a loan with an APR of more than 100% due to be repaid within a 12 month period from when it was taken out ), but this rose to 18.3% for the first half of 2018.

This rise is despite the FCA-imposed price cap on such loans since 2015 – meaning that the total amount payable in interest, fees and charges cannot be more than the original amount borrowed, and the cost per day cannot be more than 0.8%. This helped to reduce the worst harm caused by such loans, but far from eradicated the problems.

It is notable that 29% of clients aged under 25 have a short-term high cost credit debt at the point they seek advice from StepChange.

With nearly one in five clients using short term high cost credit at the time they contact the charity, it seems obvious that there is a need to establish better alternatives.

Phil Andrew, CEO at StepChange Debt Charity, said: “Our clients’ experiences show loud and clear that you’re more likely to get into debt if you are already on a lower income, and that debt problems are often caused by the kinds of life shocks that can happen to anyone – job loss, ill health or anything else that knocks your income off track.

“We saw some particular worries in the first half of this year in the form of a resurgence in high cost short term credit among our clients, more people behind on fuel bills, and a stubbornly high incidence of council tax arrears. Council tax is especially concerning in light of mounting evidence that government debt collection practices are lagging far behind best practice. Government must reflect on this evidence and ensure that government debt is included in the new statutory debt breathing space scheme. Like the Treasury Select Committee, we are not convinced that the scheme can be effective if it is not.”

Retirement finance specialist, Age Partnership appoints new board member

The UK’s leading retirement finance specialist Age Partnership has appointed David Wing to its board.

David’s new position, risk and compliance director, will see him take the lead in the continuing development of the company’s governance structures, policies and procedures.

Speaking of the appointment David said: “I’m extremely passionate about making sure we do the right thing for our clients.”

“Having worked in FSA/FCA regulated business for over 17 years, my appointment to the main board at Age Partnership will allow me to provide a consistent focus on conduct risk at the highest level of management. With the ultimate aim not only to make continuing improvements, but also to drive up standards across the sector by setting a positive example.”

David, who was previously head of risk and governance at Age Partnership, is a well-known figure across the finance industry having held the positions of CF1, CF10 and CF11 within other regulated businesses.

Age Partnership’s chairman, Andrew Thirkill added: “David has been instrumental in developing Age Partnership’s governance and risk management framework. Over the past four years he has managed a combined compliance, training and competence team of forty professionals to influence culture and drive through change.

“His appointment to the board will enable him to drive forwards, working alongside the FCA to deliver the best client outcomes at Age Partnership and of the equity release market overall.”

StepChange Debt Charity comments on latest Bank of England consumer lending figures

Responding to the latest Bank of England Money and Credit statistical release showing that the annual growth rate of consumer credit slowed in August, to 8.1%, Peter Tutton, Head of Policy at StepChange Debt Charity said: “With consumer confidence slipping over the summer against a backdrop of uncertainty caused by Brexit, it’s perhaps not surprising that credit growth has continued its downward trend.

“However, credit card borrowing keeps rising in contrast to other loans, and with household savings at a record low, means we must keep an eye out for issues arising out of emergency borrowing to ensure lending remains affordable and sustainable in the long term.”

StepChange reveals new strategy to double the number of people helped by 2022

StepChange Debt Charity today publishes a new four-year strategy that sets out an ambition to double the number of people it can help by 2022 and, for the first time, launch early intervention services.

Independent analysis suggests that the number of people requiring debt advice will soar to two million by 2022. This stands in stark contrast to the fact that currently the entire debt advice sector currently only has capacity to support about one million people. StepChange is therefore taking steps to play its part, along with others, and to innovate to close the gap between the number of people who need help and the number who get it.

The charity aspires to:

  • Double the number of people it advises annually by 2022 from around 300,00 to 600,000, keeping its advice free, and not compromising on advice quality or client experience
  • Offer new services aimed at helping people earlier, nipping some problem debt in the bud and resulting in better outcomes for people facing financial problems. By 2022 the charity hopes to be helping 175,000 people a year through earlier intervention
  • Increase its partnership working with creditors, local and national government, other charities and organisations to minimise duplication and maximise value and impact
  • Diversify its funding model, which will enable it to protect its core services while also creating sustainable funding for the new early intervention initiatives
  • Implement new technology and new ways of working so that services are delivered efficiently, client experience is improved, and the charity’s debt advisers are better supported
  • Make maximum use of its unparalleled data and insight from clients to identify and campaign for evidence-based policy changes that will reduce problem debt.

StepChange is the only debt advice charity that also operates services across mortgage advice, equity release solutions, individual voluntary arrangements and insolvency options, and the full range of Scottish debt solutions. Being able to offer the full spread of possible options to clients is important to the charity, as it ensures clients have access to the solution that is right for them.

Phil Andrew, CEO of StepChange Debt Charity, said: “We should be shocked that the need for debt advice is estimated at twice the sector’s current capacity to deliver – but we also have to plan ahead to meet it. Debt gives people sleepless nights and costs the economy dearly through knock-on impacts on the NHS, in housing, and beyond. Our new strategy goes beyond triaging and treating problem debt, and will also look for new ways to work in partnership to reach people earlier and deal with problems sooner.

“There are 1,500 people who work at StepChange and most of them talk to our clients every day, so they know what people facing debt problems need. Each and every one of my colleagues has had a hand in developing our new approach. Their passion is the magic ingredient that will help our plans succeed, and I am deeply grateful to them for their commitment, through which we anticipate providing full, free debt advice to over 1.7 million people over the four years to 2022.”

Labour’s plan to ban credit card betting stands to save consumers £545 million on fees and interest

Commenting on Labour Deputy Leader Tom Watson’s call for a ban on using credit cards to gamble, Alastair Douglas, CEO of Free Credit Report provider and credit experts TotallyMoney, said: “A blanket ban on the use of credit cards would be a massive win for consumers.

“For regular purchases, people usually get an interest-free grace period, which doesn’t apply when credit is used to gamble. The trouble is that most people aren’t aware of how much gambling with credit truly costs them — that is, not until their bill arrives. A TotallyMoney survey of 1,000 people revealed that only 1 in 10 people are aware that gambling with credit is treated as a cash advance, which means higher-than-average interest rates apply.

“What’s more, a recent report by the Gambling Commission says up to £8.6 billion of gambling deposits are made using credit cards. Assuming an average cash transaction fee of 3.23% and an average cash advance interest rate of 28.13%, we calculated that consumers stand to save £545 million each year on fees and interest.

“That’s why TotallyMoney is more than happy to welcome a blanket ban on gambling with credit — not only because it would save people a lot of money, but also because it would solve the problem of people spending more than they can afford by gambling with credit.”

The Money Stats September 2018 – Public Sector Improvements Mask Household Debt Concerns

Striking Numbers
£19.97: The fall in Debt growth per adult in June
£58,658: Average total debt per UK household in July 2018
£32,220: Average student debt for 2016 cohort in England
£227.94: Increase in consumer credit, per adult in the UK, in the year to July 2018
94%: First-time buyer deposit, as percent of average salary, in July 2018
0.2%: Average interest rate on instant access savings account in July 2018
18.35%: Average credit card interest rate in July 2018
34%: Proportion of income, including benefits, spent on rent by private renters
– 0.5%: Change in house prices in August 2018 according to Nationwide
– £31 billion: Change in Public Sector Net Debt (excluding debt to Bank of England) in the year to July 2018

Every Day in the UK
The population of the UK grew by an estimated 1,074 people a day between 2016 and 2017.
On average, a UK household spends £4.34 a day on water, electricity and gas.
301 people a day were declared insolvent or bankrupt in April to June 2018. This was equivalent to one person every 4 minutes and 47 seconds.
In August 2018, cash machines were used an average of 94 times a second across the UK.

Personal Debt in the UK
People in the UK owed £1.592 trillion at the end of June 2018. This is up from £1.545 trillion at the end of June 2017– an extra £900.74 per UK adult.
People in the UK owed £1.5955 trillion at the end of July 2018. This is up from £1.5494 trillion at the end of July 2017– an extra £884.32 per UK adult, and £69.32 higher than the previous month.
The average total debt per household – including mortgages – was £58,658 in July. The revised figure for June was £58,525.
Per adult in the UK that’s an average debt of £30,636 in July – around 113.0% of average earnings – up 0.3% on last month. This is up from a revised £30,567 a month earlier.

Mortgages, Rent and Housing
Outstanding mortgage lending stood at £1.382 trillion at the end of July. This is up from £1.35 trillion a year earlier.
That means that the estimated average outstanding mortgage for the 11.1m households with mortgage debt was £124,506 in July.
The average mortgage interest rate was 2.46% at the end of July. Based on this, households with mortgages would pay an average of £3,063 in mortgage interest over the year.
For new loans, the average mortgage interest rate was 2.07%. Using the latest figures from UK Finance, this means new mortgages would attract an average of £2,907 in interest over the year.
According to UK Finance, gross mortgage lending in July totalled an estimated £24.6 billion. This is up 9.8% on July 2017.

Savings and Pensions
In Q1 2018, households saved an average of 4.3% of their post-tax income, including benefits. This is up from 3.2% in Q1 2017.
According to the Family Resources Survey, 45% of working age adults actively participated in a pension in 2016/17, up 2% on the previous year. This was 66% for employees, and 16% for the self-employed.

Spending and Loans
In the year to June 2018, consumer credit increased by 8.8% with new lending outstripping repayments according to UK Finance. In the year to July 2018, outstanding levels of credit card borrowing grew by 7.2%, slightly down on the rate of growth at the beginning of the year.
In Q1 2018, households in the UK spent £118.1m a day on water, electricity and gas – or £4.34 per household per day.
The average interest rate on credit card lending bearing interest was 18.35% in July 2018. This is 17.60% above the Bank of England Base Rate of 0.75%.

The Bigger Picture
The UK economy grew by 0.6% in the three months to July 2018, an increase from the 0.4% growth in the previous three months, according to the latest estimates from the Office of National Statistics.
CPI (Consumer Prices Index) 12 month rate stood at 2.3% in the year to July, the same as for the years to May and June 2018.
The largest contributors to inflation over the 12 months to July have been transport (0.7%), housing and household services (0.5%) and recreation and culture (0.4%).

About The Money Charity:
The Money Charity is the UK’s financial capability (financial education) charity. Our vision is that everyone has the ability to be on top of their money as a part of everyday life. We empower people across the UK to build the skills, knowledge, attitudes and behaviours to make the most of their money throughout their lives.

Fleet Mortgages celebrates 4th birthday

Fleet Mortgages, the buy-to-let and specialist lender, is today celebrating its 4th birthday having launched on this day in 2014.

During that period, the lender has grown significantly in terms of lending activity, loan portfolio and the employee headcount of the business.

At the time of writing, Fleet Mortgages has a loan portfolio of £1.2 billion, and after eight months of 2018 has already surpassed 2017’s origination volume for the entire year, plus it still has no accounts in arrears. The business has grown from 48 employees at the end of 2015, to 97 today.

During the four years of its existence, Fleet Mortgages has hit a number of landmarks, from issuing its first mortgage on the 29th January 2015, through to its first securitisation in November 2016.

Since then it has moved into new premises, has completed two further securitisations and secured a further funding line in order to develop its buy-to-let product proposition.

Fleet Mortgages continues to focus on the buy-to-let market, offering product options across three core sectors – standard, limited company and HMO. It is specifically focused on providing mortgages to portfolio and professional landlords and recently announced that two-thirds of its purchase mortgage applications were now via limited companies.

For all standard and limited company products – except those offered at pay rate – Fleet Mortgages operates an ICR of 125% at 5%, regardless of tax rate.

Bob Young, Chief Executive Officer of Fleet Mortgages, commented: “Reaching our fourth birthday may not appear to be a ‘milestone’ moment but for all of us involved in Fleet Mortgages – especially those that have been here from that first day – it undoubtedly is.

“We have come a considerable distance in four short years and we have built an excellent lender that we believe has a strong reputation for quality not just amongst the intermediary market but also within the capital markets.

“The difference – as it so often is – being the quality of the people who work for Fleet and the work they are willing to put in to ensure we deliver the best service we possibly can to advisers and their clients.

“We have reached a number of milestones during the past four years including the growth in our overall loan portfolio, our three securitisations, and the fact we continue to have no arrears on our accounts – which is a sign of the quality of our mortgages and our focus on ensuring that only those that can afford to pay, receive a Fleet mortgage.

“Our journey has a long way yet to run but we will continue to strive to be the best we can be, and do all we can to support advisers and their clients active in the buy-to-let market.”

Interest Rates: 74% decrease in tracker mortgage interest following August rate rise

There was a sharp fall in the number of consumers shopping for tracker mortgages in August following the rise in interest rates, new analysis from Experian has revealed. On August 2, the Bank of England (BoE) made the cost of borrowing more expensive when it raised the Base rate to 0.75%, its highest level since March 2009.

Data from Experian shows that just 10% of those shopping for mortgages throughout August were looking at tracker deals, down from more than a third (38%) in July. Interest in fixed-term deals remains high, with 38% looking at those products, up from 36% in July.The figures suggest that the rise in Base Rate put-off potential home buyers from viewing a tracker deal as an attractive option for their home loan.

Research from Experian revealed that the latest rise will add around £400 a year in mortgage payments to those with on tracker and standard variable rate (SVR) deals, based on a 20-year, £250,000 loan.
In August, the company announced it would be offering mortgage eligibility to customers, giving potential home owners the opportunity to find out which mortgages they are likely to be accepted for and how much they could borrow, based on lenders’ criteria.

Meanwhile, further analysis of data from Experian found that consumers looking to get away for the summer have been looking to borrow more than £4,000 to fund their holiday.

Consumers shopping in May, June and July have been looking to borrow £4,305 on average in order to pay for their summer break.

Amir Goshtai, managing director of Experian Marketplace & Affinity, said: “The fall in searches for tracker mortgages suggests people are nervous about further rate rises, so are instead looking at fixed deals to given themselves more certainty. “We hope that our mortgage eligibility feature will help people more quickly decide more quickly what the right mortgage is for them, particularly when so many people are still on standard variable rate mortgages and could be paying significantly less.”

Money Advice Trust appoints Vineeta Manchanda and Rebecca Wilkie as new trustees

The Money Advice Trust, the charity that runs National Debtline and Business Debtline, has appointed Vineeta Manchanda and Rebecca Wilkie as members of its board of trustees as of 1st September 2018.

Vineeta and Rebecca replace Claire Whyley, Merrick Willis and Sian Williams on the board whose terms of service have come to an end.

Vineeta has served as a non-executive director at organisations including the Royal Free Foundation Trust, Sandwell Children’s Trust and Relate. She spent twenty-five years in fund management and investment banking, including at blue chip global firms such as Merrill Lynch and Credit Lyonnais. She has recently operated at managing director and board level, growing start-up emerging market investment banks.

Rebecca is currently programme director at the Litigant in Person Support Strategy which helps people without means through the court and tribunal process. Prior to this role she was chief executive of the Bar Pro Bono Unit, a charity matching members of the public who cannot pay for advice with a pro bono barrister. She has also previously held a number of non-executive director roles including at the National Pro Bono Centre and the Advice Services Alliance.

Adam Sharples, Chair of the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said: “I am delighted to welcome Rebecca and Vineeta on to the Board of Trustees. They bring with them a wealth of knowledge and expertise which will be of great benefit to the Money Advice Trust. With demand for the Trust’s services continuing to remain high, our work in helping people to tackle their debts and manage money with confidence is more important than ever.

“I would also like to thank Claire, Merrick and Sian, whose terms on the Board have come to an end, for their hard work and service over the last few years.”

Vineeta Manchanda said: “The work of the Trust in helping people to tackle their debts and improve the debt and credit landscape is a vital one. I am Iooking forward to working with Adam and the rest of the Board to help shape the important work the Trust delivers, and to bringing an additional outside perspective from my experience in the corporate world.”

Rebecca Wilkie said: “I am excited to be joining the Board of an organisation with such a strong reputation and I look forward to helping build on their outstanding work for people in financial difficulty. The need for free, independent, expert advice for people in debt is every bit as important as it is in the legal sphere, and I look forward to exploring what learning can be applied across these two sectors.”

StepChange comment on Help to Save

Following a successful pilot, StepChange Debt Charity is pleased that the Government has today announced that the new Help to Save scheme is now available across the whole of UK to eligible lower income working households.

When people turn to StepChange for debt advice, 98% of them have no savings whatsoever. The charity has long called for realistic mechanisms to enable more households to save – and in previous research has estimated that if every household in Britain had £1,000 in accessible savings, this would reduce the number of people in problem debt by half a million.

Under the Help to Save scheme, delivered through NS&I, eligible lower income households can save up to £50 a month, and after two years get a bonus of 50% of the highest balance they achieve during that period, with a subsequent additional bonus at the end of four years. From the perspective of the charity’s clients, this type of saving may be particularly helpful and realistic for those who are becoming debt-free, to help build their financial resilience for the future.

Phil Andrew, CEO of StepChange Debt Charity, commented: “98% of our clients have no savings at all at the point they turn to us, and only 1% have £1,000 or more. Yet we know that having £1,000 in rainy day savings virtually halves the risk of falling into problem debt, so helping lower income working households to build savings should be an important policy goal.

“We campaigned for Help to Save and it is a good scheme. Yet it will only bring benefits if people actually use it. The Government’s impact assessment suggested only one in seven of those eligible are likely to use Help to Save in its first two to three years of operation. It’s vital for the Government to make a real effort to promote the scheme if it is to have the desired result, and for all of us who work with eligible households to support that effort.”