Stay updated with the latest news about UK banks by subscribing to our free updates.
Get a comprehensive overview of the latest UK banks news every morning with our myFT Daily Digest email.
Every segment on interest rates must, according to the laws of television news, include two groups of people: a family concerned or relieved about their mortgage and a saver expressing the opposite sentiment.
However, in the current situation, no one is happy. Soaring mortgage rates are affecting those who are transitioning from fixed-rate teaser deals, which will impact approximately 2.4 million households by the end of 2024. Banks are facing criticism for not passing on the increased interest rates to savers.
During a UK parliamentary inquiry in March, NatWest CEO Alison Rose highlighted that one out of four people in the UK have savings of less than £100, indicating that the habit of saving money has been lost in Britain. Lloyds CEO Charlie Nunn mentioned that the average mortgage customer has a household income of £75,000, while 80% of customers have less than £5,000 in savings. He suggested that those who are truly struggling in this current financial squeeze have neither savings nor a high income.
How are these individuals managing? Quite poorly, from all indications. Moreover, many of them are not customers of the major retail banks.
It is widely known that a significant portion of the UK population is underserved by traditional banks, although there is a lack of reliable data for comparison. Exclusion from banking services increases during economic downturns as lenders become more risk-averse. According to Fair4All Finance, around 17 million people in the UK were in financially vulnerable circumstances due to the pandemic, facing low or no savings, high debts, lack of insurance, or an inability to cover expenses.
Tackling another important issue, Fair4All Finance will address the number of people who have been completely excluded from the regulated credit sector. A survey conducted by Ipsos, which involved 1,859 British adults, suggests that 3 million individuals have borrowed from illegal money lenders over the past three years.
Another survey conducted with borrowers and illegal lenders reveals concerning insights. The majority of borrowers are employed, with a median income of £20,000 to £24,999 for clients of illegal lenders (compared to the national median of approximately £28,000). About 80% of respondents said they had been denied credit in the past three years. There is also evidence of “parallel” lending, such as former home-credit agents continuing to lend money to previous customers informally.
How does this align with official figures from the Financial Conduct Authority (FCA), which is expected to report that only 200,000 adults (or 0.5%) borrowed from an unlicensed money lender in the past year? The FCA’s survey is extensive and highly regarded. However, this is a challenging issue to measure, and the FCA acknowledges that official data tends to underestimate the problem.
Other sources point to a growing problem. A survey by the Joseph Rowntree Foundation indicated that 14% of low-income households (roughly 1.6 million) have loans from unregulated lenders. The abrdn Financial Fairness Trust found that 4% of UK households used an unlicensed or informal lender last year.
The reality is that payday lending, doorstep operations, and other forms of high-cost credit have significantly declined in recent years due to stricter regulations. The FCA estimates that over 3 million people used these products before the Covid-19 pandemic. However, high-cost lending volumes have decreased by 90% in the past decade, and door-to-door home credit has decreased by 75% since 2019.
What has emerged to fill this gap is still unclear. A House of Lords amendment requesting the FCA to prioritize financial inclusion was recently rejected. One proposal from a coalition of campaign groups is to adopt a Fair Banking Act, similar to the well-established approach in the United States. This act could include a proper reporting framework with incentives for banks to address gaps in service provision, either directly or through partnerships with non-profit community development financial institutions or other specialists.
Although some ad hoc efforts are already in place, such as NatWest providing £900,000 for hardship grants to community development financial institutions, the alternative banking sector in the UK remains small and underfunded. In the US, nearly three-fifths of the population banks with a credit union, compared to less than 5% here.
Homeowners and savers alike often feel dissatisfied with their banks. However, attention should also be given to those who are not receiving any services at all.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
