Banks told to support squeezed households

BANKS have been warned to offer customers additional support as the rising cost of living threatens to tip millions of households into financial difficulty.

The Financial Conduct Authority (FCA) told the UK’S 3,500 lenders and consumer credit firms that not enough help was being given to those hardest hit by inflation and interest rates.

The letter suggested that banks should consider providing measures similar to those recommended during the pandemic, including debt help and “tailored forbearance”, such as loosening repayment rules on borrowing.

“Buy now, pay later” companies were also contacted, despite many of these not being regulated. The FCA said it had included non-authorised firms to encourage them to provide an “appropriate level of care and support”.

The letter said: “We expect to see higher demand for credit, although rising interest rates, and lower disposable income, may make borrowing less affordable, or unavailable, for some.

“Firms will also see a wider group of consumers in financial difficulty, who will find it harder to pay their debts. Some of these will be in vulnerable circumstances or may be experiencing financial difficulty for the first time.”

The FCA reminded lenders to make consumers aware of free debt advice, while ensuring that any fees and charges levied on borrowers are fair and only cover the firm’s costs. Families are being squeezed by soaring costs with official data showing that consumer price inflation rose to 9pc in April. According to top ratings agency Moody’s, 13pc of UK mortgage borrowers could face financial distress if inflation remains in high-single-digit territory next year combined with an aggressive rise in interest rates.

The Institute of Fiscal Studies has estimated that poor households may face average inflation as high as 14pc because a higher proportion of their budgets are spent on energy and food.

At present, just over a quarter of the population have low financial resilience, but that figure is likely to increase over the next year, said the FCA.