UK adults will borrow £101.1bn over the next 12 months

UK adults will borrow £101.1bn on new credit cards, loans, overdrafts, and other forms of credit arrangements in the next 12 months according to new research undertaken by YouGov on behalf of Smart Money People, the UK’s largest financial services review site.

40% of UK adults take out some form of credit over the next year due to the cost-of-living crisis (rising prices for fuel, energy, and food) and borrowers predicted they would look to borrow an average of £5,259 each. 

15% of this new borrowing is predicted to occur during autumn, with 32% predicted to take place during winter. A further 13% were unsure exactly when they would borrow but expect it to be when energy price rises affect them.

Smart Money People warns lenders to be aware that these potential borrowers are being forced to make difficult financial decisions under immense pressure due to the increasing cost of living crisis. With some consumers even turning to loan-sharks and other high-risk forms of temporary credit.

Jacqueline Dewey, CEO of Smart Money People said: “Increasing numbers of UK adults will become what the FCA considers to be vulnerable customers as they have low resilience to deal with the current economic climate. Lenders need to be very aware that their potential customers are being pushed to their limits in these extreme circumstances and may make choices that are not necessarily in their best interests.”

Smart Money People additionally found that 71% of people currently have less disposable income than they would usually have on average per month due to the current crisis. Therefore, 21% of the adults who say they expect to take out a new form of borrowing in the next 12 months, will do so to cover day-to-day expenses. This is equivalent to 8% of the adult population, or 5.5m people. One in ten will borrow to consolidate existing debts.

In terms of credit, the most popular type in the next 12 months is expected to be a credit card: 34% of expected borrowers say this will be their preferred method of credit. The other most popular types of borrowing in the forthcoming year will be an agreed overdraft (17%) and Buy-Now-Pay-Later (15%).

Jacqueline Dewey concluded: “In light of the new Consumer Duty rules that will be introduced next year and guidance that sets higher and clearer standards of consumer protection, lenders need to ensure that they are ready to deliver good customer outcomes and provide evidence that these outcomes are being met. 

“The next few months will be a real stress test of lenders’ ability to meet these new terms. They need to ensure that they and their staff have the capability to understand and meet the needs of all customers - particularly those who are most vulnerable.”