More than eight million UK adults are “financially fragile” and at risk of being over-stretched due to record levels of unsecured debt and rising interest rates amid the cost-of-living crisis, according to a report.
Data by accountancy giant PwC and credit app TotallyMoney found that 8.9 million adults are showing signs that their finances are teetering on the brink – meaning that they may need to use their overdraft to cover everyday spending and essentials, such as the food shop.
They may also struggle to keep up with repayments on their borrowing in 2023.
The study estimates that unsecured debt, such as personal loans, now stands at more than £400 billion, which equates to a record high of £16,200 for each UK household.
This, with rising interest rates, is leaving household finances worryingly vulnerable, according to the research.
PwC also estimates that more than 20 million adults are being “under-served” by UK banks, effectively meaning they are locked out of mainstream banking services, for example because they have a thin credit file, minor adverse credit history or sub-prime credit card.
The group said a survey of more than 2,000 adults at the start of 2022 suggested this is a 50% increase since 2016, and means that at least one in every three adults may have difficulty accessing credit from mainstream lenders.
Isabelle Jenkins, leader of financial services at PwC UK, said: “The results are startling and it’s clear that for UK households struggling with post-Christmas debt, the outlook may feel challenging.
“For most borrowers, credit performs an important function, smoothing income and expenditure, which, if affordable, can be beneficial.
“However, unaffordable lending and borrowing can cause real harm to individuals and society, and vulnerable consumers can be disproportionately affected.”
She said households struggling with repayments should contact their lenders to access support and that talking to lenders will not affect credit history.
“Your options could include making reduced payments for a temporary period, changing your mortgage or loan terms to make your payments more affordable and being directed to sources of free debt advice,” she said.
The report found that in the past year alone, unsecured household debt has grown by more than £1,000, or an annual growth rate of 7.2% to £16,200.
This is up from close to £10,000 by the end of 2016.
Simon Westcott, PwC UK’s strategy and UK financial services lead, said: “The rising levels of unsecured debt plus UK households’ vulnerability to interest rises could leave consumers over-stretched.
“However, there is an opportunity for lenders to continue to create and develop products and services that truly meet the needs of consumers in this potentially challenging time.
“In addition, the consumer duty, due to be implemented in the new year, will set clearer standards of consumer protection across financial services therefore we expect a major shift which will ideally promote competition and growth based on high standards.”