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Over 45% of People have Suffered Financially as a Result of the Pandemic

How the pandemic is impacting on our borrowing habits and financial well-being

Our recent survey has found that 45.5% of people have, as a direct result of the pandemic

  • taken out some kind of additional finance facility
  • borrowed money from family or friends
  • or sold assets

It’s therefore clear that the pandemic is having a major impact on the nation’s financial wellbeing.

The result of two national lockdowns, multiple business closures and steadily increasing levels of unemployment, have left many facing an uncertain financial future and have led nearly half of those surveyed to have to take on additional debt or sell assets to get by. 

With Christmas fast approaching it looks like being a worrying time for many households.

Percentage of people who have had to borrow because of the pandemic

And the problems look set to continue…

Worryingly the problem looks set to continue as 43.2% of people anticipate having to take out a further credit facility, or borrow additional money from family or friends, before the end of this year.

Percentage of people who are expecting to borrow more because of the pandemic

Who has been the worst affected?

Young adults, specifically those aged between 25 and 34 are struggling financially the most, with 66.1% of this age group saying that they’ve taken out some form of additional finance, borrowed from family and friends or sold assets due to the impact of the pandemic.

Those living in London have seen a greater impact than other major cities, with 61.3% having to incur additional debts or sell assets in order to make ends meet.

The Financial Conduct Authority has estimated that a third of UK adults have seen their income affected by the pandemic and with 227,000 people made redundant in the third quarter of this year, increasing numbers are having to rely on borrowing to survive.

What forms of credit are people turning to?

Types of credit facilities that people have taken out due to the pandemic

Most are turning to short-term borrowing

The most common forms of credit facility that people have turned to have been short term borrowing options, such as credit cards and overdrafts.

  • 25.8% of people have gone overdrawn (either with an arranged or unarranged overdraft).
  • 15.5% of people have taken out an additional credit card.

Whilst this makes sense on one level, as people may be hoping that they only need support in the short term, the associated costs can make this an expensive option.

Overdraft rates hit an all-time high

This reliance on overdrafts for so many people is a major concern due to the rise in overdraft rates this year with some banks charging almost 40% APR.  Bank overdraft rates have more than doubled since March and this has been compounded by the phasing out of the interest-free overdraft buffer of up to £500, for those who have been put them into financial difficulty by the pandemic.

According to trade body UK Finance, 27 million accounts were taking advantage of the buffer and will be impacted by this decision.

So anyone who is relying on their overdraft to subsidise their income during the pandemic could now be hit with huge interest rates, regardless of whether their overdraft is arranged or unarranged.

People are reaching out to family and friends for help

10.5% of people have said that they’ve received financial help from either family members or friends to get them through this year.

Whilst this is certainly a cheaper and possibly interest free alternative to taking out a credit card or loan, tensions can arise if the agreement isn’t followed by either party.  

Young adults have been hit the worst financially

According to our survey, 25-34 year-olds have been struggling financially the most, with 66.1% of this age group saying that they’ve taken out some kind of finance facility, borrowed money from family or friends, or sold assets because of the pandemic.

Percentage of people who have had to borrow because of the pandemic - split by age

18-24
59%
25-34
66.1%
35-44
63.6%
45-54
38.7%
55-64
23.6%
65+
16%

66.7% of this age group also anticipate having to take out further borrowing before the end of this year.

Percentage of people who anticipate having to take out further credit by the end of this year - split by age

18-24
56%
25-34
66.7%
35-44
61%
45-54
34.3%
55-64
20.4%
65+
14.7%

Those aged 18-24 years have also been hit particularly hard by the pandemic, with 59% saying they’ve had to borrow already this year and 56% anticipating having to borrow more to get them through Christmas and to the end of 2020.

Young adults are most likely to have been furloughed

According to the Office for National Statistics, “younger workers and those working in accommodation and food services were most likely to be furloughed and were also less likely to have their pay topped up by their employer when compared with other furloughed employees”.

With young people making up the largest proportion of workers in the hospitality sector, which has been hit hardest by the pandemic, it’s not surprising that many have had to turn to additional borrowing to get by.

Which areas are struggling the most?

Map showing the percentage of people who have had to borrow because of the pandemic - split by region

Percentage of people who have had to borrow because of the pandemic - split by city of residence

London
61.3%
Manchester
49.1%
Belfast
46.2%
Leeds
44.4%
Bristol
44.2%
Edinburgh
40.6%
Nottingham
38.5%
Cardiff
38.4%
Norwich
38.3%
Birmingham
37.7%
Liverpool
33.6%
Newcastle
32.5%
Southampton
31.9%
Sheffield
25.8%
Glasgow
23.1%

Londoners struggling the most

The cities where most people had to rely on credit facilities this year were all in either tier 2 or tier 3 before the second national lockdown came in to effect at the start of November. This suggests that these additional restrictions had a big impact on the finances of people living in these areas.

Those living in London have clearly struggled the most financially during the pandemic, with 61.3% of our respondents living in London saying that they’ve had to take out a credit facility, borrow money from family or friends, or sell assets, which they wouldn’t have otherwise had to do.

59.6% of Londoners are also anticipating having to take out further credit to see them through to the end of 2020.

With unemployment rates in London reaching 6% between July and September (whilst the national average was 4.8%) it’s not surprising that many are struggling.

Why people anticipate having to borrow before the end of this year

The reasons why people anticipate having to take out further credit by the end of this year

Job loss
33.44%
Payment holidays ending
27.98%
Christmas
25.34%
Day-to-day expenses
18.65%
Consolidate debts
12.14%
Help family/friends
7.04%

Fear of job loss

The main reason that people anticipate having to borrow more by the end of this year is the worry of losing their job or being made redundant, with 33.44% who expect to take out further credit stating this as the reason.
With unemployment and redundancy figures rising to their highest levels since 2009, according to the Office for National Statistics, people are worried for their livelihoods and are trying to make preparations in case the worst were to happen.

When payment holidays end

With the deadline for payment holiday applications now over, 27.98% of people who expect to have to borrow more will be looking for other means of credit to make up the shortfall.
Using new credit to pay off existing loans is a worrying cycle that people are now finding themselves caught up in.

To cover the costs of Christmas

Over a quarter (25.34%) of people who have said they that anticipate having to take out a credit facility or borrow from family or friends are doing so to cover the cost of Christmas this year.
Whilst there is still some uncertainty over exactly what Christmas will look like this year,  people are still looking at ways to make financial preparations to cover the additional costs that the holidays bring.

To cover living expenses

18.65% of people who expect to take out a credit facility or borrow from family or friends are doing so to simply cover everyday living expenses, something that could see many falling into a debt spiral over the coming months.

 

So, it’s clear to see the huge financial impact that the pandemic has had on so many people’s lives.  With large numbers driven into additional debt and Christmas just around the corner, the financial effects of Coronavirus are likely to be with us for some time to come.

 

Data Sources

All figures, unless otherwise stated are from a survey conducted with The Leadership Factor. The total sample size was 2,000. Fieldwork was undertaken between 12th November 2020 and 16th November 2020. The survey was carried out online. View the original data here.

Overdraft data - https://www.thisismoney.co.uk/money/saving/article-8896845/Overdraft-rates-hit-time-high-free-buffers-soon-disappear.html
Furlough information - https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/annualsurveyofhoursandearnings/2020
Unemployment data - https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/regionallabourmarket/november2020
FCA data - https://www.fca.org.uk/news/press-releases/fca-highlights-continued-support-consumers-struggling-payments
UK Finance data - https://www.ukfinance.org.uk/covid-19-press-releases/lenders-provide-over-one-million-repayment-deferrals-on-credit-cards

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