Equifax’s Neil Munroe explores the consumer financial
pressure points.

 

Earlier this month, the Bank of
England highlighted concerns about continuing pressure on family
finances, particularly in the light of soaring oil and gas
prices.

It was another worrying suggestion
that the economy won’t recover as quickly as had been hoped – and
not for want of trying. Global pressures are certainly playing a
very large part in how the UK economy performs.

But what does this mean for the
consumer finance and retail motor marketplace? The pressure on
family finances has already had a clear impact on the appetite to
change cars in the past two years. But motor retailers, and the
finance companies that fund this sector, will also be concerned
about consumers’ ability to manage existing finance for car
purchases.

Regulators are keen that lenders
look much more closely at affordability when extending new credit
and, of course, it makes good business sense because there is no
advantage in writing new finance deals that result in defaults or
repossessions.

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By GlobalData

Recent research by Equifax among
customers who have purchased a copy of their own credit report
indicates that affordability has been hugely influenced by a lack
of increase in earnings, combined with rising inflation.

Indeed, a staggering three-quarters
of respondents to our survey, conducted last month, reported that
they haven’t received a pay rise so far this year and nearly a
quarter (23 percent) have had their income cut.

More than half of consumers we
surveyed also believe the recent tax and benefit changes have
affected their family finances, with over 15 percent believing that
they will be more than £500 a year worse off as a result.

The typical UK family needs to be
more astute with its finances, whether by bulk buying, using
Buy-One-Get-One-Free offers, making packed lunches, or growing
vegetables. And this also encompasses bigger expenditures,
including car usage.

Over a third of our survey
respondents said they are using their car less – and walking more –
to manage their day-to-day finances better. And around 10 percent
have sold their car or reduced the number of family cars.

Being able to manage their existing
financial commitments is, of course, key and, worryingly, one in
five believe that if they lost their job it would take less than a
month before they faced severe financial difficulty.

It is a sobering picture for the
motor finance sector, especially as, according to data we collected
earlier this year, it appears consumers are more reliant on credit
than ever. Nearly two-thirds of credit card users said they use
them for everyday expenses, although only half pay off all their
credit card debt each month.

And with so much pressure on family
finances, it is perhaps no surprise that more than 40 percent buy a
lottery ticket every week.

Neil Munroe is external affairs
director at Equifax