Cost of living crisis pushing 6% of people to start borrowing for the first time

7th June 2023

Since the onset of the cost-of-living crisis, 6% of people have started borrowing for the first time, and 8% are borrowing more according to research by Hargreaves Lansdown.

The research found that some groups are more likely to have stepped up their borrowing – including younger people, women, renters, and parents. Meanwhile, other groups have stopped borrowing, in an effort to protect their finances – particularly men and higher earners.

Sarah Coles,  Head of Personal Finance at Hargreaves Lansdown said “It has officially come to the crunch. Prices have been rising for so long that millions of people have spent their way through the extra cash they built up during the pandemic and are being forced to borrow. Millions more were already borrowing, and have fallen even deeper into the red – and some groups are suffering particularly badly.

“Women are going deeper into debt. One in ten are borrowing more as a result of rising prices – compared to 7% of men. This is likely to stem from the fact that on average women tend to be on lower incomes.”

“Younger people are also struggling. Some 16% of those aged 18-34 have started borrowing for the first time and 14% are doing it more. They tend to be on lower incomes, and are meeting rising costs on all sides. The average age of a first-time buyer outside London is 33, so most of these people are renting. Given how rent dominates their spending, and has been rising alarmingly – hitting an average of £1,190 a month outside London – it’s hardly surprising that 13% of renters have started borrowing more.”

“Singletons are also struggling, with 13% forced to borrow more – compared to just 6% of married couples. Having to cover bills on their own at a time when they’re rising through the roof is increasingly challenging. It’s also tough for parents, 14% of whom have started borrowing for the first time and 12% of whom are doing it more. At the stage in life when there are more mouths to feed in what’s likely to be a larger home, the impact of higher prices hits hard.”

“And things aren’t getting any easier as time goes on: more of us spend our savings, run out of costs to cut, and end up borrowing to meet the shortfall. Separate research from the ONS has found people have been under even more pressure in recent weeks. Some 25% of people have had to borrow more than usual in the past month – rising to 39% among those in their 30s and 40s.”

“The HL Savings & Resilience Barometer has always shown that higher earners tend to borrow more – and more as a percentage of their income. However, this separate survey shows that at the moment, an awful lot of them are reconsidering their approach. They recognise that now isn’t the time to over-extend themselves, and where they have the cash to live within their means, they’re doing so more: 23% of higher rate taxpayers have stopped borrowing and 16% have cut back. It’s more likely among men too – 19% of whom have stopped borrowing. This tallies with the fact that men earn more on average than women.”

“But it’s not just high earners who are trimming their borrowing. There are also plenty of people who recognise the risk of borrowing as rates rise, and an awful lot who have spent their way through all their available credit and hit the wall. Overall, 10% have cut back on borrowing and 15% have stopped altogether. Among those aged 18-34, 17% have stopped borrowing and 13% have cut back on it. This is unlikely to be because younger people suddenly find themselves with plenty of money, and is instead more likely to be a realisation that borrowing to cover non-essentials is only going to make it more difficult to cover the cost of the basics in future.”