Half of people are borrowing to cover the cost of nasty surprises

8th November 2023

New research by. by Opinium for Hargreaves Lansdown has found that half of people are borrowing to cover the cost of nasty surprises – including two thirds of young people, parents, and high earners

The research found that people are much less likely to have avoided expenses out of the blue (46%) than we were six months ago (54%). The average cost of an unexpected expense is £788, but one in 20 had expenses of £5,000 or more.

40% of people were able to cover the bulk of the cost from savings but just 14% had extra income to stretch to it – so 46% had to borrow.
Whilst 61% of parents were forced to borrow, 64% of higher rate taxpayers, and 69% of those aged 18-34.

Sarah Coles, Head of Personal Finance, Hargreaves Lansdown said “There have been more nasty surprises lurking around the corner in the past year – with 54% of people hit with an unexpected cost out of the blue in the past 12 months. On average, they’re setting us back £788 each, but one in eight people forked out more than £2,000, and one in 20 spent £5,000 or more. Almost half of people are having to borrow to cover the cost.”

“The number of expenses out of the blue has been growing. In October, only 46% of people said they hadn’t had these costs in the previous year – compared to 54% six months ago. Part of the problem is how we’ve been trying to cut our costs as the price of everything rises. Foregoing routine maintenance and repair – whether it’s your car, your home or your pet – means small niggles don’t get solved until they’ve turned into bigger problems. Another issue has arisen as we get used to higher prices: if our direct debit for our energy bill has gone up, we may think we’re covering the higher cost. However, if it hasn’t gone up enough, we could be set for a shock bill.”

“Meanwhile, our ability to absorb these one-off costs has been hampered by the cost-of-living crisis. The research also showed one in four people have eaten into their savings because of rising prices, and one in 20 have emptied their accounts.”

“It’s one reason why almost half (46%) borrowed to cover the cost of emergencies – including 15% using a credit card, 7% borrowing from family and friends, 7% using an overdraft, 4% using a loan, 3% using buy-now-pay-later and 3% a store card. While borrowing may be a short-term solution, in the end it adds to the problem, because extra interest doesn’t just eat into your income, it adds to the overall cost, so nasty surprises get even nastier.”

“Men are far more at risk of having to borrow than women, with only 37% able to cover the cost of unexpected expenses from saving, compared to 44% of women. They’re also less likely to cover it from income – at 16% compared to 12%. This owes something to the fact that their emergencies were more expensive – at £833 compared to £730. However, it may also owe something to the fact that on average they earn more.”

“Higher rate taxpayers are more likely to have had an unexpected expense (73% compared to 55% of basic rate taxpayers). This comes down to the fact that they’re more likely to have acquired more – whether that’s a bigger house, more cars, or horses rather than hamsters. It gives them more to go wrong, and a higher bill for fixing it – at £1,258.”

“Those aged 18-34 also face major problems with unexpected expenses. Some 67% have faced one in the past 12 months – compared to 44% of those aged 55 and over. This may be because a lack of spare income makes it difficult to keep on top of things, or a lack of experience makes it harder to predict big expenses. To make matters worse, the younger people are, the more expensive their emergency – younger people (aged 18-34) spent £979, while the squeezed middle (aged 35-54) spent £762 and older people (aged 55 and over) spent £672.”

“Younger people are far less likely to have savings to cover these one-off costs, with 25% using mainly savings – compared to 39% of the squeezed middle and 58% of older people. Those aged 18-34 are also far less likely to have the spare income to pay for emergencies – at 6% compared to 18% of older age groups. It means younger people are far more likely to borrow – at 69%, compared to 43% of the squeezed middle and just 24% of older people.”

“Parents are also at risk. They’re less like to say they avoided an emergency expense – at 28% compared to 56% of those without children. They also spent far more on them – at an average of £1,065 compared to £636 of those without children. This may be because family life has so many moving parts, and therefore so much to go wrong.”

“They’re less likely to have had savings to cover the cost of a nasty surprise (28% compared to 51% of those with no children), less able to cover it from income (11% compared to 16% with no children), so they’re more likely to have borrowed (61% compared to 33% of non-parents).”