Speaking at The Specialist Lending Event, Ryan Brailsford (pictured), director of business development at Pepper Money, said: “We’ve arguably just come out of, or are still in, I would say the biggest cost-of-living crisis that we’ve seen in generations.”
He pointed to inflation, which over the past few years has spiked to double digits on occasion but has started to tick down.
The Bank of England has said it expects inflation to return to its target of 2% “earlier” than initially thought, potentially in spring.
“I’m sure that will be welcomed by a lot of households, but we’re not out of the woods yet. First and foremost, that doesn’t mean prices are coming down, it means they are going up a little bit slower. You could argue the… damage has already been done.
“When you look at the cost of the certain things within it, it can be slightly misleading, so if you look at the figures to the end of last year, for example, food prices still rose by over 4.5%.
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“People are feeling the pinch when essentials, like food, [are] still going up faster than maybe the headline rate they’re being told is the average. That leaves people a little bit confused when they’re thinking: ‘Every time I go shopping, it just keeps going up’. But it is on its way back down, and that definitely is good news,” he explained.
On the base rate, Brailsford noted the Bank of England has said we should “definitely expect cuts later this year”, which will boost consumer confidence.
However, a potential headwind could be unemployment rising, and it is forecast to hit 5.8% by the end of the year. This would be the highest it has been for over a decade, barring the spike from the Covid pandemic.
Wage growth, which has been variable over the past few years, is also “trending down”, with the Office for Budget Responsibility (OBR) predicting it could hit around 3.5% this year and then fall to 2.25% next year.
Disposable income being hit and leading to financial stress
Brailsford noted that this will mean less disposable income, but according to the Specialist Lending Study, 38% said they had less disposable income now than a year ago, though this was an improvement from 57% from the prior year.
He noted that the study found that people had cut back on non-essential outgoings. Some said they were stopping saving on a monthly basis, were no longer paying into their pensions or had cancelled their protection.
“They’re the things that we don’t want to see, but we’re starting to see bit by bit, because people are sort of trying to keep all these plates spinning, and the problem is it leads to mental health issues for customers,” Brailsford said.
He added that over two million people last year took time off work due to financial stress, equal to around eight-and-a-half million days and £860m. Nearly a third of people who took time off work due to financial stress took more than a week off.
Brailsford said younger people were particularly affected and were also more likely to have a side hustle.
He noted that in the last three years, five-and-a-half million people have taken on a second role just to continue to make ends meet, and often these will be on a self-employed basis. He said this was becoming increasingly normal, so lenders had to “keep up with that”.
FTBs looking to buy but lack of credit is issue
Brailsford said that according to its Specialist Lending Study, there were around 1.2 million people who said they’re going to be in a financial position to buy their first home in the next 12 months.
This nearly doubles to 2.2 million when looking at a 3-5-year time frame.
“It shows consumer confidence is returning a little bit, and first-time buyers want to get on the ladder, but one thing that I see every day, and I’m sure so do you, is that the challenge first time buyers have is often lack of credit.
“There’s nothing wrong with them, but because they’ve not built up a profile, Mum and Dad told them: ‘Don’t borrow anything’. They save the deposit, and now they’re buying for a mortgage, and they get declined, and they try again, and they get declined again. They need advice. All of these people that are coming up for the first time into the market, they need good advice. It’s never been so important,” Brailsford said.
He added that according to figures in its Specialist Lending Study, 16.6 million people are said to have had adverse credit at some point in their lives, which is the largest number since it started the study back in 2019, and this could continue to grow.
Brailsford said that’s nearly a third of the UK population, so if someone is writing 25 mortgages per month, that’s around eight of them.
Within that 16.6 million figure, around 9.26 million of these adverse credit events have occurred in the last three years.
“These are the ones that are likely to be more impacted. The recency in itself is going to cause them a problem when it comes to a getting a mortgage that they want or any other finance that they’re looking for.
“They’re also more likely to have other sort of hangovers from whatever life event caused the adverse. They need someone to sit down with them to work out: ‘What is it I need to do to get myself back on the straight and narrow?’ Maybe it’s debt consolidation, but there’ll be lots of different options, but they need a bit of help actually managing their money,” he said.
Brailsford said it was worrying that people try their bank, and when it says no to a mortgage, “they don’t go anywhere else”.
“We need to get the phone ringing. We need to get them taking the advice that they need, because the opportunity for us to help them is absolutely out there,” he noted.
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