One day in the red – a snapshot of UK credit

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On July 27th, several different companies in the financial services industry published reports relating to consumer credit, giving a rare one-day snapshot from a variety of perspectives.

Lloyds Bank’s Spending Power report looked at people’s attitudes towards their current financial situation, and found an overall improvement in sentiment.

The overall Spending Power index is at an all-time high of 164, a rise of four points; people’s confidence in their current situation is up five points at 218, and their sentiment about the future is up two points to 109.

So how does sentiment stack up against reality? Unfortunately for creditors, the picture is not as positive as that report might indicate.

‘Budgeting account’ provider thinkmoney, which provides fee-charging personal accounts where certain sums are ring-fenced for regular outgoings like bills and saving deposits, reported that a third of Britons have paid overdraft charges in the past year.

At an average charge of £73 for unauthorised overdrafts and – of more concern for creditors – bounced payments, that’s a total of £1.2 billion in costs incurred.

While the report doesn’t identify how much of this cost related to refused scheduled payments, rather than overdraft fees, it did discover that one in five consumers paid over £100 on one or both of those areas in the past 12 months.

Finally, the Debt Advisory Centre found young people – specifically the under-25s – are most likely to look to credit to cover their costs.

A third have used credit for mortgage payments or rent; a quarter have used a credit card or loan to pay utility bills; a fifth have fallen behind with their rent or mortgage; and over a third said they can’t afford their next bill.

Melanie Taylor, spokeswoman for the Debt Advisory Centre, said: “It is incredibly worrying to see such a high volume of young people struggling to make ends meet. Financial independence is something that should be encouraged, but clearly it is increasingly out of reach for many.”

This overall snapshot of British finances – and in particular our reliance on credit as a nation – should serve as a word of warning that even in a time of improving sentiment, the reality is that many people are still extremely stretched.

For creditors, it is as important as ever, if not more so, to carry out background checks and instigate sensible credit control measures, particularly on new customers, until they demonstrate a commitment to paying in full and on time.

If you would like to talk to a member of our team please call on 0808 115 8933.

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