The Financial Conduct Authority (FCA) has reminded borrowers they can get help from their lenders if they are struggling to keep up with payments, as it found the number of people struggling to meet bills and credit repayments has risen by 3.1m since May 2022 (10.9m, compared to 7.8m in May 2022).
The number of adults who missed bills or loan payments in at least three of the last six months has also gone up by 1.4 million, from 4.2 million to 5.6 million over the same period.
The FCA has repeatedly reminded firms of the importance of supporting their customers and working with them to solve problems with payment, including by writing to industry bosses to make sure they are aware of the regulator’s expectations.
Where firms haven’t supported their customers properly, the FCA has told them to make changes. It reminded 3,500 lenders of how they should be supporting borrowers in financial difficulty and told 32 lenders to make changes to the way they treat customers. This work has led to £29 million in compensation being secured for over 80,000 customers.
As part of its Financial Lives survey, the FCA found that the cost of living is having an impact on people’s mental wellbeing. Around half of UK adults, or 28.4 million people, in January 2023 felt more anxious or stressed due to the rising cost of living than six months earlier.
Sheldon Mills, Executive Director of Consumers and Competition said: ‘Our research highlights the real impact the rising cost of living is having on people’s ability to keep up with their bills, although we are pleased to see that people have been accessing help and advice.
‘If you’re concerned about your finances, you do not need to worry alone. We’ve told lenders that they should provide support tailored to your needs. And, if you find yourself in debt or want to know more about how to manage your finances, free expert advice is available.
‘We will continue to act quickly to make sure financial firms help their customers who are facing financial difficulty or are worried they might be soon.’
The support needed to deal with the rising cost of living goes beyond what is provided by the financial services sector. As a result, the FCA continues to work with other regulators and debt organisations to drive better coordination and help make sure customers are treated fairly and supported if they get into financial difficulty.
The FCA will also be introducing the Consumer Duty in the summer. The Duty will be the driving force behind its consumer protection work, as it will require firms to act to deliver good outcomes for consumers and make sure that they are properly supported while using a financial product or service.
How the new interest rates affect house prices and rent across the UK
Housing market: hurry if you’re selling, halt if you’re buying, stay if you’ve borrowed, finance experts advise
Landlords will likely increase rent prices or sell to cope with increased mortgage repayments
Inflation and interest rates will keep rising, but house prices are already slowing down
TODAY, the Bank of England will decide what the new base interest rates might be, currently at 1.75%. Top market analysts expect this to further rise to 2.25%.
The Office for National Statistics announced on August 17th that UK inflation rose to 10.1%, from 9.4% two months earlier. The Bank of England expects it to further increase, peaking at 13.3% in October. The accompanying higher interest rates and bleak two-year economic outlook generally means bad news for homebuyers, landlords and renters across the UK.
Top market analysts at CMC Markets expect interest rates to further rise to 2.25% this month. This directly impacts mortgages on variable rates – around 1 in 5 households in the UK – and another 3.1 million whose fixed-rate periods expire in 2022-2023, according to UK Finance estimates.
Borrowers whose repayments are directly linked to the base rate, as set by the Bank of England, will now face mortgage repayments at rates between 3% and 4%, up from 1.75% and 2.75% only five months earlier. This will inevitably spill into rent prices.
CMC Markets analysed the latest data for June 2022 from HM Land Registry, published on August 17th, and concluded that the likely tendency for house prices is in a temporary slowdown, which is good news for those waiting a little longer to buy a home.
Michael Hewson, Chief Market Analyst at CMC Markets comments: “Houses sold in June 2022 only increased in price by 1% compared to May, whereas, last year, this constituted a much more generous 5.7% surge.
“This is only the first month this year for prices to slow down at such a fast rate, so some caution before jumping to conclusions is advised. Remember, house prices may be slowing down, but they are not decreasing. Importantly, since this is transactions data processed at the time, it does not take into account the big leap in interest rates that the Bank of England announced later that month, let alone the even bigger hike in August.
“Therefore, despite the soaring inflation and rising consumer prices across the board, UK house prices appear to be trailing behind because demand for homes has generally come to a screeching halt. Most buyers are weathering the storm for a few more months at least, while some are also working out how the cost of living crisis will pan out in the medium term so that the new mortgage is not squeezing their pockets beyond their comfort zone.
“For those still keen to get on the property ladder, there are plenty of fixed-rate banking products that can insulate them from the current spiralling interest rates on mortgages. They should, however, prepare for the possibility of being faced with higher-than-expected repayments once the fixed rate period expires, as the new variable rates are at the lender’s discretion. Fixed rates are not a cure-all either, as they may now be set to a higher level to start with.
“The buy-to-let market is equally volatile. Landlords will either pass the increased mortgage repayments onto tenants by increasing their rent or simply sell fast to lock in a better price. Right now though, those already on the property ladder are generally better off staying put rather than moving or re-mortgaging. They would not get a good deal on their old house in this market and may likely end up losing more money overall.”
What did the Bank of England do earlier in August?
The Bank of England explained that the rise in interest rates was necessary due to external pressures which are expected to persist. This means that British firms and residents will continue to feel this weight reflected on rising domestic prices, wages outpaced by soaring inflation, and even higher mortgage repayments, despite the Bank’s attempt to widen the borrowing pool through less restrictive mortgage rules.
Although historic, the Bank’s decision was not a surprise for trading analysts at CMC Markets, a London-headquartered financial services company, who believe the Bank was expected to raise interest rates higher than 1.25% during the June meeting, as a means to keep import inflation in check.
This is on the backdrop of a 10% year-to-date depreciation of the British pound sterling against the US dollar and an indication from the Federal Reserve, the US central bank, of a further interest rate increase by 0.5% or 0.75% in September.
Michael Hewson comments: “The UK currently fares worse than both the EU and the US. This is due to its closer dependence on energy shocks than the States and less government intervention to soften the blow compared to its European counterparts.”
What’s next and when will things calm down?
Other than adjusting the interest rates to the accurate level to keep abreast of import inflation, the economic projections for the UK paint a bleak outlook for the next two years.
The UK is projected to enter a recession in the final quarter of this year, the Bank of England announced. The country’s economy will contract by 1.25% in 2023 and 0.25% in 2024, however, inflation is becoming a much bigger long-term threat, with unrealistic chances of falling back to the desired 2% much before 2024.
The current political race for the Conservative Party leadership and the consequent fiscal policies promoted by the new British government is a major factor to take into account for any inflation, GDP, and unemployment projections and investment decisions.
As it stands with the current measures, inflation is expected to peak at 13.3% in October – a sharper increase than the Bank anticipated in June, originally estimated at 11%. It will continue to rise throughout 2023 only to decline in 2024.
Meanwhile, forecasts for the Consumer Price Index (CPI) are less optimistic now, expected to decrease only to 9.5% in the third quarter of 2023, although the Bank anticipates a sharp fall in prices immediately thereafter.
Selling prices are set to increase to reflect rising costs while real household post-tax income is expected to plunge in 2022 and 2023. The Bank predicted that core prices will peak at 6.5% this year, meaning that, in the following six months, food and energy will constitute more than half of the headline CPI.
The next meeting for the Monetary Policy Committee, where the Bank of England will decide what the new base interest rates might be, is today – September 22nd.
A new £30 million fund is being established to support small businesses within the third sector, helping them to grow as Scotland recovers from the impacts of coronavirus.
The fund will be designed to respond to a need for third sector organisations to access loans to help grow and explore new forms of social investment and finance. It will also help support the sector to meet the challenge of the pandemic and to become more sustainable in the long-term.
Communities Secretary Aileen Campbell said: “We have worked hard to support the third sector throughout the pandemic. This new fund will focus on those organisations with the potential to grow, contributing to jobs and making a positive contribution to our communities and the wellbeing economy.
“It also goes some way towards our commitment to explore other strands of social investment, including capital loans, to build upon Scotland’s world leading position in social enterprise.
“The fund will help this sector to ensure that it not only supports our communities, but is at the very forefront of our recovery, leading our communities and our country through recovery.”
Yvonne Greeves, Board member at Firstport & Chair of Catalyst Fund, said: “The Catalyst Fund is an exciting new addition to the social investment arena in Scotland.
“The patient, revenue-based repayment model is well placed to help certain social enterprises obtain the capital they need to start-up and grow, whilst offering them a more flexible repayment approach to match their ambitions.
“We welcome the support from the Scottish Government in backing this innovative model and we look forward to supporting social enterprises with potential for high-growth to enter new markets and deliver significant social impact.”
The Third Sector Growth Fund will build on more than £1 billion which has been invested in communities since the start of the pandemic, which includes a recent commitment to a further £14 million to allow the Communities and Third Sector Recovery Programme to continue to the end of June.
The Third Sector Growth Fund will have three elements:
The Social Catalyst fund, which totals £15 million, will help growing organisations which are not able to access finance through standard loans, offering investment which can be repaid based on turnover, rather than growing interest rates. This would suit small businesses and start-ups whose income is variable.
The Circular Economy Fund will support activity which builds on sustainability of social enterprises and enables growth through investment loans. Together with The Long Term Third Sector Finance Fund which will offer loans for social enterprises and Third Sector organisations over a period of 18-24 months. a total of £10 million will be available.
The Social Impact Venture Portfolio will offer investments of equity into mission-driven businesses, encouraging organisations to adopt a social enterprise model. This is worth £5 million.
The delivery partners are The Social Impact Venture Portfolio and Social Investment Scotland, a social enterprise and a charity offering loan funding and business support across the sector to make a positive impact on lives, society and the environment.
Social Investment Scotland will manage The Circular Economy Social Enterprise Fund and Long Term Third Sector Finance Fund.
The Impact Investment Partnership Scotland (IIPS), an entity owned equally by Firstport and Social Enterprise Scotland (SES), will manage the Social Catalyst Fund.
Access to the funds will be by application. Further details of the funds and how to apply will be published on the partner organisations websites later this Spring.
New Hopetoun Gardens, a garden centre in Broxburn, was among many retailers who were forced to suddenly close their doors when the pandemic hit in March last year.
The garden centre, which offers Scotland’s largest range of plants for sale, relied heavily on customer visits and face-to-face trading so the forced closure hit the business hard. With an average of 10,000 customers a month during a normal April and May, it missed out on the busiest trading months of the year.
Profits dropped considerably and 28 of its 36 staff were furloughed.
In April 2020, New Hopetoun Gardens approached Bank of Scotland for support and received a £195,000 Coronavirus Business Interruption Loan Scheme (CBILS) funding package. This allowed the business to ensure it had sufficient cashflow, pay suppliers, care for the plants, and provide reassurance to its staff that operations will continue once restrictions have eased.
New Hopetoun Gardens introduced home delivery services for its customers and launched a new website six weeks ago to facilitate a click and collect service.
These measures have helped over the past few months but the decision after Christmas to give ‘non-essential’ status to the centre has hampered business prospects of opening before its busiest trading period in early spring.
Morag Macrae, joint owner of New Hopetoun Gardens, said: “The past year has been really challenging for us as a business. Most of our trading is done face-to-face and while we’re incredibly grateful to our fantastic customers who have used our click and collect and delivery service, we saw our revenue drop considerably.
“The change that saw us considered as a “non-essential” shop was quite a blow as we hoped to be open to take full benefit of our busy spring trading period.
“Thankfully, the support from Bank of Scotland has been a massive boost. It has allowed us to keep our operations running and keep us out of our overdraft which has been a huge relief.
“While times are still challenging, business has picked up considerably in March and we’re hoping we will be able to re-open soon to make the most out of our key trading period, when it is safe to do so.”
The Financial Conduct Authority (FCA) has today confirmed a package of targeted temporary measures to help people with some of the most commonly used consumer credit products.
Following a short consultation the FCA will be going ahead with the proposals outlined last week, which will give firms the flexibility under our rules to provide temporary financial relief to those facing payment difficulties during the coronavirus (Covid-19) pandemic.
Christopher Woolard, interim Chief Executive at the FCA, said: ‘We know many people are suffering financial pressures brought on as a result of the coronavirus pandemic.
“The measures we’ve announced are designed to provide people affected with short-term financial support through what could be a very difficult time. The changes will provide support for consumers with credit cards, loans and overdrafts, facing temporary financial difficulties because of the pandemic.
‘Customers should think carefully before making use of these measures and only do so if they need immediate help. Where they can still afford to make payments, they should continue to do so.
‘We know there is still more work to be done, and we will be announcing further measures to support consumers in other parts of the credit market in the future, including in the motor finance sector next week.’
The measures include firms being expected to:
offer a temporary payment freeze on loans and credit cards for up to three months, for consumers negatively impacted by coronavirus
allow customers who are negatively impacted by coronavirus and who already have an arranged overdraft on their main personal current account, up to £500 charged at zero interest for three months
make sure that all overdraft customers are no worse off on price when compared to the prices they were charged before the recent overdraft pricing changes came into force
ensure consumers using any of these temporary payment freeze measures will not have their credit file affected
The rule changes will be in force from today and the full range of measures will apply by Tuesday 14 April 2020.
This is to allow firms time to ensure they have the appropriate level of resources available to handle customer requests. All firms will be ready to receive customer requests by 14 April, although some firms including the major banks and building societies, will be adopting the changes today.
Consumers should check firm websites or social media posts for more information, and where possible use online services to request assistance.
This will reduce the pressure on firm call centres who are experiencing a high demand in calls due to the current pandemic situation. If consumers need to get in touch by telephone please be patient and, if you can, wait until after the Easter weekend, even if your lender is offering help sooner than the 14 April 2020.
In response to the consultation, the guidance now includes clarification on which products are in scope. In particular, the FCA are confirming that the following products are covered: guarantor loans, logbook loans, home collected credit, a loan issued by Community Development Finance Institution and some loans issued by credit unions, but only where these are regulated. The guidance also applies to firms which have acquired such loans.
These measures won’t replace normal forbearance rules where these would be more suitable for a consumer in serious and immediate financial difficulty. Consumers in financial difficulty should contact the Money Advice Service (MAS) for further guidance.
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