Credit unions sound the alarm over cost of living crisis

‘They are literally asking for loans just to survive’

With soaring energy bills and food inflation continuing to drive a squeeze on household budgets, credit unions are warning of increased pressure on their members’ finances.

Wales’ Cambrian Credit Union has told ITV Wales that it has seen a surge in loan applications – not to pay for one-off projects, but to cover the cost of everyday essentials and household bills.

General manager Ann Francis told ITV: “They’ve stretched, they’re finding it really difficult, the cost of living has gone up.

“People are finding just paying for food is much more of a stretch on their budget, they’re really concerned about the increase of gas and electric. A lot of our members have had the uplift in Universal Credit taken away, so they’re already stretched, and they are very concerned about how they are going to make ends meet.”

The is particularly acute in the low-income areas covered by Cambrian, she added. “Their affordability is limited anyway. And it just erodes any kind of disposable income that they have … They are literally asking for loans just to survive.”

As well as top-up loans to pay for household costs, members are looking for consolidation loans to free up disposable income – and out of concern that they might not be able to keep up with all their payments.

Ms Francis said Cambrian is working with its members to help them through their problems. She urged people to seek help from their local credit union, or get advice from CAB Cymru or AdviceLink Cymru, rather than resorting to payday lenders or expensive buy-now, pay-later agreements.

In England, Leeds Credit Union (LCU) has also raised its concerns. Last month CEO Paul Kaye warned that chancellor Rishi Sunak’s spring budget did not go far enough to help people through the price squeeze.

He said: “Some policies in the spring statement certainly offer some short term help, however it’s impossible to believe the new measures alone will alleviate the negative impact that the ever-increasing cost of living is having on ordinary, hard-working families.

“For society’s most financially unstable, there is still the very real possibility that they will be forced to choose between eating or heating which, in 2022, clearly should not be the case. As a credit union, one of our greatest concerns is that those most at risk of falling between the cracks will be tempted to opt for a short-term cash injection to help pay their bills and borrow from high cost lenders or, worse still, loan sharks. Needless to say, this is not a route anyone should go down as it invariably leads to even more financial difficulties further down the line.”

Mr Kaye said people need better financial education to help them manage their money, adding that the government must to do more to support businesses and help people into work.

Last week a survey of its members by LCU revealed that, of 2,111 respondents, 28% expect to save no money in the next 12 months, and 43% expect to save less than they did last year. And 41% said their financial situation has worsened over the last 12 months, with 13% saying their position is much worse.

Almost half (47%) expect their household economic situation to worsen and 15% fear it will get ‘much worse’. Only 27% expect their circumstances to improve.

Stephen Porter, head of member experience, said: “While the results aren’t surprising given the ongoing cost of living crisis, they are deeply worrying.

“The fact that 28% of respondents said they don’t expect to save a single penny over the next 12 months is heartbreaking. As a credit union, we know only too well the impact that money worries and a lack of financial resilience can have on people and their mental health. Frankly, it is unconscionable that so many people find themselves in this position in the UK in 2022.

“The fact that many ordinary households are simply planning to stop spending in order to mitigate skyrocketing prices is a huge cause for concern too as it is likely to see any economic growth struggle to gain momentum.”

Like Cambrian, LCU says people struggling with their budget should turn to their nearest credit union.

Mr Kaye said: “The good news is that there are many credit unions available to help people in need of advice or financial assistance. I would encourage anyone facing financial hardship – regardless of their level of income – to contact their local credit union, who can offer them the affordable loans, access to savings accounts, advice and support they need to make it through this period of economic uncertainty.

“By helping vulnerable households plan their finances and assessing their debts, affordable borrowing can help people make their money go further at a time when prudence has never been more important.”

In Northern Ireland, Ballymena and Causeway Credit Union has responded to the surging prices – with the cost of home heating oil doubling in some places – by dropping the interest rate on its loans.

Marketing manager Julie Martin told Belfast News Letter: “We always would have had a home heating loan in place at a lower rate, which is only for home heating. On the 25th of February we put out a home heating reduction because we know that times are tough for everyone at the moment.”

“Our normal rate is 8% and we’ve lowered it to 4.9%. It was done as a goodwill gesture, really, to help people and let them know that we are here.”

She continued: “People are struggling. We would even find that we’ve had a few people contact us to say that they’re struggling with the repayments on their loans, because of the cost of everything at the minute. Our home heating loans have almost doubled in the last month.

“The average member would have taken out £300 before the increase and now the average is £570.”