COVID-19 leaves quarter of UK adults with low financial resilience

The Financial Conduct Authority (FCA) has released its latest 'Financial Lives' survey (FLS) which looks at consumers’ financial situations, the financial products they choose and their experiences of engaging with financial services firms. The FCA concluded its FLS research in February, and ran an extra survey in October in order to understand the impact of the COVID-19 pandemic on the financial situation of consumers. According to the October survey, there are now 27.7 million adults in the UK with characteristics of vulnerability such as poor health, low financial resilience or recent negative life events. This figure is up 15% since the FCA completed its FLS in February, when 24 million displayed characteristics of vulnerability. Nisha Arora, director of consumer and retail policy at the FCA, said: “The Financial Lives survey is fundamental to the work we do as a regulator, enabling us to hear directly from consumers across the UK. “While there are some positives in the data, many of the findings are worrying. Since the start of the pandemic, the number of people experiencing low financial resilience or negative life events has grown. "The pain is not being shared equally with a higher than average proportion of younger and BAME adults becoming vulnerable since March. "It is likely the picture will have got worse since we conducted the survey. “Vulnerability remains a key focus for the FCA, and has been brought into sharp relief by the pandemic. "We continue to work with the wider financial services sector, including businesses, regulators and government to support and protect consumers. We expect to finalise our guidance on how firms should treat vulnerable customers shortly.” The FCA found that the number of consumers with low financial resilience - meaning over-indebtedness, low levels of savings or low or erratic earnings - has grown. Over the course of 2020, the number of UK adults with low financial resilience increased from 10.7 million to 14.2 million. Highlighting the threat to people’s incomes from the pandemic, in October one in three adults said they expect their household income to fall during the next six months, whilst a quarter 25% expected to struggle to make ends meet. To cope with the hardships they expected to face, many adults reported that they were likely to cut back on essentials (33%) or to use a food bank (11%); 8.1 million (16%) expected to take on more debt. However the research found that 48% of adults have not been affected financially by COVID-19, and 14% have actually seen an improvement in their financial situation. Over the course of the pandemic, the FCA has worked with the financial sector and consumer bodies to help protect consumers with measures such as mortgage and credit payment deferrals. One in six mortgage holders have taken up a mortgage payment deferral and 40% of them reporting they would have struggled a lot without such measures. The FCA surveyed more than 16,000 people between August 2019 and February 2020. This was followed by a subsequent survey, with over 22,000 respondents, focused on the impact of the pandemic on consumers.

Dave Harris, chief executive at more2life, said: “Financial vulnerability has arguably never been higher on the agenda than since the onset of COVID-19, and today’s FCA report reaffirms how widespread this issue is across the UK.

"Indeed, the Covid-19 crisis has left over a quarter of UK adults with low financial resilience according to today’s findings.

"Not only that but thousands of people’s financial, mental and physical health has worsened, in some cases overnight, with many older households in particular facing job loss or faltering pension fund performance.

“Others will have been vulnerable long before the crisis hit, and the impact of the economic downturn has escalated their financial worries. As a result, we could see a worrying number of older people making short-term choices around unsecured borrowing to help make ends meet which have long-term consequences.

“The likelihood is that many people may view unsecured loans as the best option if they are struggling financially when, in reality, other solutions could be better for them.

"However, many consumers remain unaware of alternative solutions, such as equity release and later life mortgages, and are simply not able to make informed decisions about their finances.

“The later life lending industry has a huge role to play in ensuring older consumers’ financial security is being put first.

"The co-operation of advisers, lenders, trade bodies and other key players will be crucial to making sure that measures are in place to support older households in poor financial health, and that this demographic understands the solutions best suited to their short and long-term needs.

"As we navigate the ongoing crisis, I hope to see the industry continuing to work together to prioritise financially vulnerable customers and support them with their decision-making.”

Vikki Jefferies, proposition director at PRIMIS Mortgage Network, added: “Today’s analysis from the FCA is alarming.

"The financial security of a vast number of households up and down the country remains poor, with the number of UK adults with low financial resilience having increased from 10.7 million to 14.2 million during 2020.

"What’s more, for many individuals, this is likely to have gotten worse since the onset of the COVID-19 crisis.

"Indeed, thousands of people have been plunged into financial difficulty during the last year either as a result of job loss or a change in income, and this will remain the case for some time yet as consumers continue to navigate the fallout of the crisis.

“What now needs addressing is the knowledge gap among consumers of the financial solutions that are out there to help – and this is where advisers will come into their own.

"Many borrowers may be more likely to resort to unsecured forms of lending to alleviate the pressure on their finances, for example.

"However, for many, this will not be the best solution over the long-term, so brokers need to play a key role in informing consumers about the alternative solutions that will be better suited to their circumstances.

"The same goes for products such as income protection, which many customers will be unaware of without the support of an adviser.

"I am confident that, over the coming months, we will continue to see brokers rising to the challenge and helping to improve the UK’s financial health.”