Symptomatic of the way some may have changed their view of taking such action is the Don’t Pay UK campaign.
Launched earlier in the summer with the intention of getting at least 1mn people to cancel their direct debits to energy companies, the campaign has already attracted 90,000 signatories.
For many, the third option – borrowing – is not going to be so easily tapped. Their ability to cushion the shock with credit could well be limited.
Unlike previous downturns, the lending environment is markedly different. A whole raft of consumer safeguarding regulation has been enacted, the latest being consumer duty. Many simply will not be able to afford to borrow and will fail the more rigorous affordability assessments.
They are already significantly indebted; UK consumers owed £1,805.7bn at the end of June 2022, up by £62.5bn from £1,743.2bn at the end of June 2021, according to The Money Charity's August 2022 report. That is an extra £1,181.21 per UK adult over the year.
The average total debt per household, including mortgages, was £64,970. What’s more, credit card spending seems to be taking off.
We cannot forget that regulation in the wake of the changing economic landscape and looming defaults will mean lenders’ risk appetite may well have changed.
Providers might undertake a ‘flight to quality’, especially given the negative cost associated with mis-selling.
The last resort option of defaulting on existing finance may well become the only option for a significant proportion of lower-income households, despite the negative consequences in terms of credit profile and future borrowing prospects.
So far there is little sign of this happening, with consumer debt write-offs and repossessions not significantly changed on previous years, but with mortgage rates now rising on the back of other inflation, it may not be long before we see the last of the four options rise steeply.
The extent to which this will happen is going to depend largely on the success of the energy price freeze and overall government efforts to smooth the cost of living hike over the two-year cycle that the Bank of England is predicting.
Only time will tell how well equipped households are to weather the storm, and if they will still be standing on the other side.
David Wylie is commercial director of LendingMetrics
