Shedding light on rising credit reliance and financial resilience

The Equifax 2024 Financial Health Report highlights the UK’s increasing reliance on credit, alongside a rise in arrears levels in the mortgage and auto lending markets and a gender divide in financial resilience. How can the industry step in and support?

The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

A year on from our last report, the macroeconomic situation has somewhat stabilised, with consumers effectively navigating current economic challenges and adapting their credit habits. But this doesn’t tell the full story and there are still many challenges facing consumers financially.

While there is little evidence of consumers struggling to keep up with monthly repayments, there are nonetheless early signs of increased reliance on credit cards. Total outstanding credit card debt has been steadily rising, up 9.7 per cent in 2023 to reach £67.4 billion by year end. There has also been an uptick in high credit card utilisation levels and the number of cards exceeding their credit limits.

Meanwhile, consumers are depleting their previously accumulated savings, and there are increased arrears levels in both the mortgage and auto loans sectors. More mortgage holders have been stretching out their loans terms to over 35 years to counteract higher interest rates, and while this might ease the immediate burden, it raises concerns about the long-term consequences.

Challenges exaggerated across genders

Against this backdrop, another challenge is the noticeable gender disparity in financial resilience. While overall confidence in paying off debt is high, there's a split between men and women, coupled with a 38 per cent difference in savings between the genders by the time they hit 75.

The conclusion we can draw from this is that women have been less able to take advantage of the higher interest rate environment of recent months. This matters because having a savings buffer is crucial for financial wellbeing, enabling consumers to cope with life’s inevitable shocks and downturns.

What can the industry do?

The way in which the industry is responding is positive, with better use of data helping to power better lending decisions and – ultimately - better outcomes for consumers. As an industry, we have never had more tools at our disposal and innovation remains a priority. Nonetheless, the reality of how consumers are struggling to make ends meet remains alarming.

So far, most of us have remained steadfast with repayment commitments across various credit products, and a recent study from Equifax indicates 85 per cent of indebted Brits feel confident in their ability to repay all debts.

Nevertheless, the trends we’re seeing should act as a wake-up call to the industry. Creditors have a responsibility to step in and support those who are struggling before financial difficulty takes hold.

By improving financial inclusion and our understanding of consumer affordability, providing better financial education, and offering tailored support to vulnerable consumers, together the industry can work towards creating a fairer and more equitable society.