Additionally, 44% of those using Buy Now Pay Later (BNPL) services reported that their debt from such schemes had grown in the past 12 months
Four in 10, or 41%, of consumers have increased their unsecured borrowing over the past year – a trend echoed by the Bank of England’s findings, which show increasing demand for credit card lending in the second quarter of 2023.
This year’s Pepper Money Specialist Lending Study found that around 30% of respondents have unsecured debts exceeding £5,000, with 10% reporting debts of over £15,000. Additionally, 44% of those using Buy Now Pay Later (BNPL) services reported that their debt from such schemes had grown in the past 12 months.
These higher levels of unsecured borrowing are impacting mortgage aspirations, with 42% of consumers expressing concern that their debt may hinder their chances of securing a mortgage.
Ryan Brailsford, director of business development at Pepper Money, highlighted the challenges borrowers with unsecured debt face when approaching mainstream lenders.
There are many factors that could see a mortgage application rejected by a high street lender only to be approved by a specialist lender, who have expertise in underwriting more complex cases, he said.
Missed payments can see applications turned down, and this year’s Specialist Lending Study found that 8.38 million people have experienced adverse credit in the past three years. Outstanding unsecured debt is another reason why a customer’s circumstances could be considered ‘just-off-high-street’ as many lenders will impose a limit on the debt-to-income ratio (DTIR).
Wayne Smethurst, Director at All Money Matters, echoed these concerns, noting that rising unsecured debt has worsened affordability issues for prospective homebuyers.
In recent months, we have seen a definite upward trend as so many people have increased their unsecured borrowing during the cost-of-living crisis, and these outstanding debts can significantly reduce the size of mortgages available to them or see them being rejected altogether, he said.