The findings from Great Expectations – The Demanding Market for Credit, reveal the extent of borrowing that 16-25 year olds use when they leave full-time education, as increasing rents (particularly in London) stagnating wages and last week’s 0.25% hike in interest rates place increasing pressure on the finances of young people.
Nearly half (46%) stated that they had taken out a loan of over £1,000 in order to plug an unexpected shortfall in their finances, with savings unable to cover the difference. In contrast, just 13% said they had borrowed more than £1,000 to widen their monthly budget, implying that 18-25 year olds are not regularly relying on credit to make ends meet on a month-by-month basis.
The consumer debt that nearly a third of the age group are building up is distinct from university fees and maintenance grants which will be deducted from the pay packet of those earning over £21,000, soon to rise to £25,000.
However, it is clear that this demographic is not borrowing recklessly – consumers are taking appropriate steps by comparing rates and shopping around when accessing the credit market. 4 out of every ten compared over 5 separate loan providers when taking out a loan, and 90% used an online comparison website to weigh up available rates.
It is reassuring that this demographic is responsibly taking the time to secure the best possible deals on their loans which will allow them to keep up with their repayments and minimise the chances of defaulting.
The level of due diligence they are taking is manifesting itself in confidence that they can borrow responsibly; nearly a third (31%) stated that they feel comfortable using credit according to the recent FCA Financial Lives report2.
Equiniti believes that technology should not lower barriers to credit, but provide a means for the youngest in society to access loans at favourable rates and minimise the prospect of falling into a ‘vicious credit circle’.
Richard Carter, Managing Director of Credit Services at Equiniti, commented on the findings:
“There is no doubt that for many young people, money is tight at the minute, and so it is little surprise that the 18-25 age group has the highest rate of borrowing over £1,000 in the past 12 months. Wages are failing to keep up with inflation and so credit is one way in which the youngest can cope with financial shocks, to plug unexpected, short-term gaps.
However, it is crucial that we protect these consumers from falling into perpetual debt, which may damage their long-term economic prospects. This is why Equiniti encourage young people to seek proper advice about their financial options and, if taking out a loan appears the best option, to shop around using comparison websites to ensure they are getting the best possible deal.”
For more information and analysis from Equiniti’s full report, Great Expectations – the Demanding Market for Credit, click here.
For more information:
Temple Bar Advisory:
William Barker / Sam Livingstone
Tel: 07827 960151 / 07769 655437
The research consisted of a survey of 2,001 consumers.
1 – ONS: UK Population, by Age
2 – FCA: Financial Lives
Notes to Editor:
Equiniti is an award-winning specialist outsourcer delivering technology-enabled solutions to large enterprises. It processes £90 billion in payments every year, handles 88 million documents and pays 20% of pensioners in the UK. We are acknowledged leaders in many of our markets and keep things running smoothly for some of the UKs best known brands and public-sector organisations. Equiniti’s industry-leading standard was officially recognised at Shares Awards 2017, winning the Best Share Registrar and Best Investor Education categories.