The FCA has released data showing the scale of financial problems facing consumers as a result of the COVID crisis.
• In July, 12 million UK adults had low financial resilience with 2 million joining that group since February.
• 31% of adults have experienced a decrease in household income.
• Those aged 25-34 are most likely to have had a change in employment as a result of the pandemic.
• The FCA says help is available from lenders for those struggling to make payments.
Laith Khalaf, financial analyst at the investment platform AJ Bell, comments on the findings:
‘These numbers show just how heavy a toll the pandemic has taken on the finances of households across the country. Now the furlough scheme is coming to an end, and the mortgage payments holiday deadline is looming, it looks like things will get worse before they get better. The load has not fallen on the broadest shoulders either with young people’s employment prospects and financial position looking especially compromised.
We are now at least a two-tier nation when it comes to finances. The pandemic has served to widen the wedge between the have and have nots in the UK. While 2 million more people may now struggle with bills and repayments as a result of the pandemic, only a few weeks ago mortgage approvals hit a thirteen-year high according to the Bank of England.
Granted that reflects a release of pent up demand from lockdown, but those who have kept their jobs and income will likely have a new cash buffer in their bank account as lockdown effectively imposed a spending freeze. Hence why the savings ratio jumped to a record 29.1% in the second quarter.
Those who have been lucky enough to benefit financially from lockdown should hang onto their savings for a rainy day. While there has been an economic recovery as the UK opened up over the summer, new COVID restrictions and the gradual withdrawal of government financial support could prompt another slowdown.
The worst thing you can do if you are struggling to pay your debts is stick your head in the sand and hope they go away - unfortunately they will just get bigger. The first step to getting on top of your debts is itemising what you owe and what the interest payments are, then wherever possible paying off the most expensive debt first.
And if you want to make use of the special payment holidays on mortgages and other borrowing, you need to act fast as the deadline for applications is 31st October. Of course taking a payment holiday doesn’t make the debt disappear, but it does give you some breathing space to work out what to do about it.’
