Young Adults are Walking a Credit Tightrope
Independent research commissioned by Callcredit Information Group has today revealed that young adults appear to be getting more desperate for credit, as 7% of 25-34 year olds admit to applying for credit knowing that they may not be able to repay it.
Key highlights:
Young adults risk credit woes
- 40% of 25-34 year olds have applied for credit in last year (double the average)
- 10% of 25-34 year olds have knowingly overestimated their income on credit application
- 7% of 25-34 year olds have applied for credit knowing they might not be able to keep up repayments
Mortgage strain
- 12% of adults said they would be unable to pay their mortgage if their monthly income reduced by up to £300
- 5% of 45-54 year olds say they couldn't keep up repayments if monthly income dropped by up to £100
Personal finance pressures
- 35% of adults said increases in domestic bills had a sudden and significant impact upon their personal finances in the 2010, 18% said the same of an increase in travel costs
- 59% of adults expect rising food prices to have a significant impact on finances in 2011
- 55% of public sector workers expect a salary freeze or reduction to have a significant impact on finances in 2011, almost double the average (28%)
The YouGov research, which looked into British attitudes towards credit as well as strains on personal finances, also revealed that the number of 25-34 year olds that have applied for credit in the last year is double the national average (40% of 25-34 year olds compared to the average of 20%). One in ten (10%) of the same age group also admitted to having knowingly overestimated their income on a credit application and becoming a credit risk.
However, it isn't just young adults that the research has shown to be struggling with credit, 12% of British adults said they would be unable to pay their mortgage payments if their income reduced by up to £300 a month. A worrying 5% of 45-54 year olds said they would struggle to keep up repayments if their monthly income dropped by up to £100. As many respondents identified circumstances, such as job loss or bill increases, that had a significant impact on their personal finances last year, mortgage repayments could be put under strain in 2011.
"These figures are extremely alarming" said Graham Lund, Managing Director of Callcredit. "It seems that a significant proportion of British people are struggling to balance their finances, with some people prepared to apply for credit knowing that they are not able to repay or exaggerating income on an application just to get credit. This shows just how important it is for lenders to have a complete view of customer finances to understand their levels of affordability."
The research also highlighted that personal finances had been put under strain in 2010, with 35% of adults suffering a significant impact on their finances as a result of domestic bill rises and 18% being adversely affected by a rise in travel costs. Consumers continue to be worried about the outlook for 2011, with almost two thirds (59%) expecting rising food prices to significantly impact personal finances and 55% of public sector workers worried about the effects of a salary freeze or reduction.
Graham Lund continues, "It's very important, for both lenders and consumers, that financial services organisations are using the right tools to recognise when individuals are on the verge of over-indebtedness or are unable to afford credit - including having sight of accounts held by other lenders. This holistic view of affordability will help to support both responsible lending and responsible borrowing and is essential in stabilising consumer and business economies."
