According to Ofgem, the increase in the energy price cap, which was introduced on 1 April, will impact approximately 22 million customers.
Ofgem says that those on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,971 per year (difference due to rounding), while prepayment customers will see an increase of £708 from £1,309 to £2,017.
The increase is driven by a record rise in global gas prices over the last six months, with wholesale prices quadrupling in the last year. This is before you consider the impact that the serious situation in Ukraine is likely to have on the energy supply. Add to this the rising cost of fuel at the pumps, food in the supermarket and, of course, the cost of borrowing as interest rates rise, and 2022 looks set to be a very difficult year financially for many people.
Many customers will be unprepared to face this financial difficulty. The most recent Pepper Money Adverse Credit Study found that 81 per cent of people with adverse credit said a £100 increase in their bills would significantly impact their finances.
At the same time, nearly a third (32 per cent) of people with adverse credit said they had increased their level of debt in the last 12 months, representing a significant increase compared to the previous wave of the research in Spring 2021. And, with interest rates rising, the cost of servicing this borrowing is only going to increase.
The role of an adviser
So, as a mortgage adviser, what can you do to help?
Taking out a new mortgage may only happen every few years for most customers, but a mortgage is also the single biggest debt that they are likely to have, accounting for a significant chunk of their monthly expenditure.
Opting for the wrong deal, or languishing on an existing lender’s variable rate, could be a costly mistake. Making sure your customers are provided with the right advice for their circumstances is an integral part of their financial planning.
It could prove the difference between them being able to meet the rising cost of living and falling short.
Unfortunately, not all customers are aware of their options, particularly those who have a record of adverse credit. According to the latest Pepper Money Adverse Credit Study, 12 per cent of all adults in this country have experienced some form of blip on their credit record in the last three years.
Many of those believe that this will write off their chances of securing a new mortgage. This lack of confidence could leave them stuck on their lender’s variable rate long after their deal has expired, potentially crippling their finances through unnecessary additional monthly costs.
Keeping in touch
At a time like this, brokers have a duty to all their customers to be proactive in communicating their services, the available options, and the value of professional advice.
A simple nudge could be all that’s needed for concerned customers with adverse credit to overcome those worries and seek out a better deal for their circumstances.
Similarly, a remortgage can also prove an excellent time to restructure finances and debt consolidation can prove a useful tool for some customers to reduce their monthly outgoings and improve their monthly cashflow.
Adverse credit doesn’t have to stand in the way of a debt consolidation remortgage.
So, don’t let your customers get beaten by the rising cost of living. Even if they have adverse credit, you could help them to remortgage and improve their financial position.