"We might see a greater number of borrowers who fall outside of mainstream lenders’ criteria or may have accumulated debt that has worsened their credit score."
October 10th marked World Mental Health Day and as we move further into the cost of living crisis, we are likely to continue to see increased financial debt sadly taking its toll on the mental wellbeing of borrowers.
A recent survey by YouGov for StepChange Debt Charity found that 45% of all British adults - the equivalent to 23 million people - have found it difficult to keep up with household bills and credit commitments in the last few months, up from 30% in October 2021 and 15% in March 2020.
That means the number of people struggling with their financial commitments has risen up by eight million in less than a year.
Its research shows 12% of adults – the equivalent of six million people - are currently behind on at least one household bill, with 2.4 million people reporting they are behind on their energy bill.
Additional research from the charity shows that 48% of adults say their mental health has been negatively affected by the increased cost of living, rising to 83% for those in arrears on household bills.
As bills continue to climb this winter and more borrowers potentially find themselves in the red or taking on more credit, its vital advisers are aware of the options available to homeowners, particularly following a period of time when house values have risen.
There can still be a reluctance among some advisers to consider a second-charge for debt consolidation purposes, perhaps over fears of adding to a homeowner’s debt. While a second-charge will not be the solution for all borrowers looking to consolidate their outgoings, it could be a beneficial option for some.
A homeowner who has lost their job for example may have temporarily started to fall behind with their regular loan or household bills. As an interim solution, they may have taken on more loan or credit card debt, resulting in not only multiple monthly repayments but also additional late fees, with their credit score suffering as a result.
While the homeowner may have since started a new permanent job, their bad credit score might mean they cannot consolidate their debt through a remortgage.
A second-charge for debt consolidation may help such a borrower regain financial control of their debts by rolling it all into one monthly payment and potentially lowering their monthly outgoings. By assessing a borrower’s financial situation on an individual basis and looking at their present situation – not just their past credit history - we can make an informed lending decision.
With the UK in the midst of increased economic uncertainty, we might see a greater number of borrowers who fall outside of mainstream lenders’ criteria or may have accumulated debt that has worsened their credit score.
The latest Money & Credit report from the Bank of England continues to show UK borrowers’ reliance on credit. On net, an additional £1.1bn in consumer credit was borrowed in August, following £1.5bn of borrowing in July.
This was split between £0.7bn on credit cards, and £0.4bn through other forms of consumer credit. The annual growth rate for all consumer credit remained at 7% in August; the highest rate since March 2019, while the annual growth rate of credit card borrowing was also unchanged at 12.9%, the highest since October 2005.
We are unlikely to see any significant fall in these figures given the upcoming rise in mortgage rates and bills.
As borrowers continue to take on credit, for some, a deterioration in their financial situation will also mean the same for their mental wellbeing and it is imperative we are equipped to help homeowners with their borrowing options.
