INFLATION RED ALERT
Santander and NatWest write to millions of customers over fears they’ll be crippled by 13% spike in cost of living this winter
SANTANDER has contacted more than a million customers who may be at risk of falling behind with bills as the cost-ofliving squeeze bites.
The High Street bank’s highly unusual move is in response to a worsening economic outlook and a cost of living crisis that has left many households struggling to make ends meet.
Lenders are concerned they could be on the hook for billions of pounds in loan losses if cash-strapped borrowers cannot afford to repay debts.
Last week the Bank of England warned that Britain faces a lengthy recession and rampant inflation as the central bank raised interest rates by 0.5 percentage points – the largest increase in 27 years – to 1.75 per cent.
The Bank’s gloomy outlook also forecast that real household incomes will drop for two years in a row, the first time that has happened since records began.
Santander has contacted customers to offer them a helping hand as inflation is forecast to reach 13 per cent this winter.
It has singled out personal account holders who are spending a large part of their income on energy, or using credit cards to take out cash or to pay for essential bills.
It is contacting customers whose current account balances are getting smaller each month at risk of going into the red.
The bank has been in touch with about 150,000 business customers and every company that took out a Bounce Back Loan during the pandemic that has not been
‘Targeted measures to support those who need them most’
repaid, directing them to the Government’s Pay as You Grow repayment scheme.
The scheme allows businesses struggling to keep up with repayments by lengthening loan terms from six to ten years.
Santander is the second bank to spell out a substantial plan of action. NatWest, one the UK’s biggest lenders, has already contacted 2.7 million customers this year.
These were selected because they have a basic bank account, are on low incomes or have utility bills accounting for more than ten per cent of their income.
Messages include tips on budgeting and savings. NatWest’s 800,000 business customers have been sent emails or letters.
NatWest chief executive Alison Rose said: ‘We know that continued increases in the cost of living are impacting people, families and businesses across the UK, and we have put in place a range of targeted measures to support those who are likely to need it most.’
Average outgoings on utility, food and mortgage payments are set to soar by £4,610 between now and the end of the year, according to the Centre for Economic and Business Research.
The increase will be driven by an expected rise in the energy price cap in October to £3,359, according to forecasts by analysts at energy consultancy Cornwall Insight.
Lloyds Banking Group’s chief executive Charlie Nunn recently said that about 1 per cent of customers, or 260,000 people, were ‘struggling to make ends meet’. Lloyds, Britain’s biggest mortgage lender, said it had consolidated the debts of 51,000 customers into a ‘single more manageable loan’.
Last week Nationwide, Britain’s biggest building society with 16million members, set up a free hotline for customers seeking support. ‘We expect members using the service to grow steadily over the coming weeks,’ a Nationwide spokesman said. Other big banks contacted by The Mail on Sunday declined to give details of action they may take.
As well as higher utility bills, millions of homeowners are set to face higher mortgage payments in the coming months after the rate rise.
About two million people have home loans with standard variable rates or tracker mortgages, with repayment charges directly linked to the Bank of England’s base rate.
Mortgage lenders such as Barclays have begun to raise standard variable-rate mortgages by 0.5 percentage points, which will immediately impact those borrowers.
Customers on fixed-rate mortgages are protected from the immediate changes in rates. However, about 40 per cent of these are set to expire within the next year.
A recent survey by MoneySupermarket found nearly a quarter of over-65s had no savings to help them cope with the costof-living crisis, with a further 22 per cent holding less than £2,000 in the bank. And almost half of under-25s had no savings either.
There are signs that households are increasingly dipping into savings built up during the pandemic to fund day-to-day spending.
ALTHOUGH we’re not yet twothirds of the way through the year, I’m sure that once 2022 comes to an end, it will be commonly referred to as a financial ‘annus horribilis’. A year, 30 years on from the Queen’s own annus horribilis, when our household finances were tested like never before.
Scary? Absolutely, but I fear that we’re heading for not just one annus horribilis, but two – and next year could well be far worse. Anni horribiles.
Without wanting to spoil your Sunday, I believe it will stretch our finances to the limit. Without enlightened thinking from whoever ends up occupying No10 (my money is on Liz Truss) and massive doses of forbearance from banks, building societies and energy suppliers, many households will simply not be able to cope.
Since the last economic crisis of 2008, we have done our bit to restore the fortunes of the banks, bailing some out and being upstanding customers. It’s payback time. They now need to stand behind us.
Some people will not be able to afford their mortgage payments or monthly rent. Others will struggle to meet the payments on their credit card bills. A surge in home repossessions and tenant evictions cannot be ruled out. Perish the thought.
Before Thursday’s 0.5 percentage point rise in interest rates to 1.75 per cent, it was clear we faced some mighty financial challenges – most notably soaring energy bills and rampaging inflation. Challenges that are already consuming an ever greater slice of our household income.
Yet listening to Bank of England Governor Andrew Bailey in the wake of the rate rise announcement, those challenges have suddenly become mightier. Of Everest rather than Ben Nevis proportion.
Bailey said inflation, running at a scary 8.2 per cent – and that’s according to the Bank’s preferred measure rather than the more commonly quoted 9.4 per cent – is now expected to hit 13.3 per cent in October.
This is just two months after forecasters at the Old Lady of Threadneedle Street had confidently predicted inflation would peak at
11 per cent. (I’ll leave you to decide whether these boffins deserve the generous salaries they earn.)
He also mentioned the word we all fear – ‘recession’. Soaring prices, he said, would push the UK economy into recession as early as October – and we will not come out of it until the end of 2023. So, 15 months of economic shrinkage, or maybe longer given the Bank’s inability to get any forecast right – indeed, anything at all right.
On average, households’ real income is likely to fall for the next two years as wage inflation fails to keep up with rising prices.
Average annual energy bills, fuelled by Vladimir Putin’s vile war in Ukraine and his attempt to hold
Europe to ransom by flicking the off switch on gas supplies, are heading north of £3,300 in October. And if energy consultants Cornwall Insight are right, bills will remain well above £3,000 for the next 15 months. To put these numbers into context, the average bill is currently just short of £2,000.
Of course, economic contraction and higher fuel bills are bad news for business too. Company energy bills do not benefit from the price cap that applies to households. Job losses – big job losses – cannot be ruled out as businesses cut costs.
All rather bleak – and that’s without taking into account the impact of any escalation in China’s bullying of Taiwan. If China decided to blockade the island long-term – or even worse invade it – the impact on the world economy would be cataclysmic, as well as increase the threat of a superpower war.
After all, it is Taiwan that manufactures the semi-conductors (often referred to as chips or microchips) that make everything from our mobile phones, fridges through to the local cash machine work. Without them, we’re stuffed.
SO WHAT can be done, if anything, to ensure our household finances are best equipped to survive the approaching economic apocalypse? Of course, we can help ourselves by ensuring our finances are shipshape. So, while there is little we can do to ward off a jump in energy bills other than improve energy efficiency in our homes and not leave the lights on overnight, we can batten down our mortgage costs by taking out a fixed-rate mortgage. Many homeowners, thankfully, have already done this.
As my colleague Toby Walne explains opposite, we can also take a firm grip of other key household bills – everything from insurance through to broadband and subscriptions. Shopping around, haggling with suppliers, and cancelling services seldom used will all help drive down our expenditure.
Yet, Government, utility providers, banks and building societies also need to step up to the plate.
So far, Prime Ministerial candidates Rishi Sunak and Liz Truss have said very little about the impending recession that Bailey’s crystal ball tells him is fast approaching. Indeed, hours after Bailey’s comments about recession, Truss confidently predicted that it ‘is not inevitable’, saying: ‘We can change the outcome.’
She may well be right given the unreliability of Bailey’s ball.
Yes, the £30billion of tax cuts (per year) that Truss has promised – primarily to National Insurance Contributions and corporation tax – would likely stimulate growth. But, simultaneously, they could keep the inflation pot boiling for longer and force interest rates even higher.
Meanwhile, Sunak’s promise of basic rate income tax cuts once inflation is tamed is a more conservative proposal (note the small
‘c’). But like Truss’s blueprint, there is nothing about helping households cope with the financial crisis lying in wait around the corner.
Hopefully they will flesh out some ideas over the coming days. Maybe an increase in the energy bill discounts (£400 per household) that start getting paid to households in instalments from October – or financial support targeted at low income households.
As for companies, they also need to do their bit to ensure households can withstand whatever any recession throws at them. As we report elsewhere in the paper, Santander has taken the bull by the horns and written to a million customers urging them to get in touch if they are having problems paying their mortgage or other bills. Such pro-activeness by lenders should become the norm, not remain the exception. It should be followed with an approach based on forbearance rather than foreclosure. No one saw such sky high energy bills coming. Consumers are not to blame.
We also need energy suppliers to refund credit balances promptly, rather than drag their feet as they do now. As for savings providers, banks especially, they must commit to passing on interest rate rises in full to their savers.
It’s what we have been calling for since December last year when Bailey’s Bank of England started its programme of gradual rate rises from 0.1 per cent to 1.75 per cent.
‘Give savers a rate rise,’ we demanded of the banks time and again until we were blue in the face. Yet they chose to ignore our calls and focus on profit generation.
The result is that savings rates have been left behind. According to data scrutineer Moneyfacts, the average rate on an easy access account was 0.2 per cent in December last year when the base rate was 0.1 per cent. Today the average rate is 0.67 per cent, compared with a base rate of 1.75 per cent. You don’t need to be a mathematician to work out savers are being shortchanged. It’s not good enough.
Maybe that powder puff of a regulator – the Financial Conduct Authority – should have a word in the ear of bank bosses and remind them that they should treat customers fairly at all times.
Of course, we will do all we can to help readers through the tricky months that lie ahead (it’s in our DNA). We will also praise to the hilt those companies that demonstrate they care passionately about the financial interests of their customers. I’m all ears.