Over 20 million are “under-served” by mainstream lenders in the UK, with one in three adults struggling to access credit, according to new data.
An analysis from PwC and TotallyMoney shows that 20.2 million in the UK are “financially under-served”, meaning they fall between the cracks of high-street lenders due to limited credit history, blemishes on their credit file, or low or volatile incomes, such as those who are self-employed or part of the gig economy.
This near-prime group, holding credit cards with a higher APR, has risen almost by 50% in just six years, from 13.6 million in 2016, as the pandemic and the cost of living placing additional strain on people’s finances.
A further 8.9 million are more at risk of falling into this category – meaning half of the population in total, as the cost of living crisis worsens.
Simon Westcott, strategy& UK financial services lead at PwC UK, said: “There is no doubt that the long tail of the pandemic plus the rising cost of living has put a significant strain on people’s financial health, which has contributed to approximately 20.2 million adults struggling to gain credit from mainstream lenders.
“This plus the fact that this population has grown by 50% in the last six years, demonstrates how important it is for the financial services industry to take steps to support the underserved.
“We saw how fundamental the financial services industry was during the pandemic, supporting small businesses and providing breathing space for homeowners, and here too there is an opportunity for lenders to enhance existing propositions and deliver new solutions that truly meet the needs of this big and diverse segment of society.”
Even those on higher incomes are now tipping into the "financially fragile" group. A quarter (24%) of those with a gross personal income of up to £59,000 would use credit to pay an unexpected £300 bill in the next 12 months, and 8% would even need to ask family and friends for help.
In the same bracket, 17% admitted they have not been able to afford things in the last 12 months that they could afford before.
Alastair Douglas, CEO of TotallyMoney, a free credit app, said: “The findings show the underbelly of a broken market – and it’s too big a problem to ignore. An alarming rise in the under-served group, and millions more treading water, is not just a symptom of the pandemic and the worst cost of living crisis in a generation, it’s also because the credit market is archaic; built to keep data in the hands of companies, not the people it belongs to.
"It’s then those who are the least cushioned who suffer the most. Not only do they struggle to access the credit they need, but the system shuts them out, leaving them with precious little option but to turn to high-cost, short-term borrowing. When they can borrow, it’s often with a higher APR, which simply adds fuel to the fire.
“The fact is, we need a credit market that serves a new economy; one in which spending habits have changed and where, quite rightly, regulation has bought about the demise of pay day loans which exploited the most vulnerable in our society. The first step to addressing this is cross-industry collaboration: credit reference agencies, lenders and fintechs who can champion financial momentum. Brushing under the carpet is no longer an option.”
The data also showed that around three-quarters of adults in the UK are worried about the rising cost of living and 43% have already had to adjust their budget as a result.
PwC said it expects that rising prices could mean that the average UK household would have to pay an extra £2,500 in 2022/23 to buy the same goods and services that it bought in 2021/22.
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