Will you put Christmas on the never-never?

It was all looking so promising. 

Those who could had saved literally billions of extra pounds as social activities were curtailed and – propped up by the surreal circumstances of furlough and other unprecedented cash injections – we were paying off our unsecured debts at speeds that must have unnerved more than a few lenders.

Now, though, reality has bitten.  

With the latest emergency extensions coming too late for many and small independent businesses – the lifeblood of the British economy – hit especially hard by the latest lockdown, the numbers are going backwards.  

The latest Household Finance Index from HIS Markit has slumped to a six-month low with savings declining at their fastest rate for seven years.  

“Household finances are coming under pressure just as Christmas has now clearly emerged on the horizon with Black Friday deals enticing consumers to part with their cash in search of a quick bargain,” adds Laith Khalaf, an analyst at AJ Bell.

“While the current restrictions are shorter and less onerous than the first lockdown, cumulatively they apply more pressure to those household budgets which were already under strain. The usual seasonal spending spree may also be kicking off early, as consumers use their plentiful leisure time to get the Christmas shopping done sooner rather than later.

With ready cash dropping back and incomes under threat, experts increasingly fear the sources of our Christmas funding and how they will make their presence felt in the New Year.  

As the fastest growing online payment method in the UK, the number of Buy Now Pay Later (BNPL) products was already growing at 39 per cent a year before lockdown, with such schemes expected to double their market share by 2023, according to a study by Worldpay earlier this year. That’s twice as fast as bank transfer transactions and more than three times the rate of annual growth in digital wallets.

Allowing consumers to delay payment or to pay by instalments over a set period, BNPL purchases have risen by more than a third since the start of lockdown.  

More than a third of adults now say they have used these schemes more than they did before the outbreak of the pandemic, a survey by comparethemarket.com suggests, with average spending up £100 to almost £290 since before lockdown.  

Perhaps more worryingly, 15 per cent of shoppers now use BNPL for every purchase they can, compared with only 4 per cent last December.  

Despite a significant proportion of UK adults feeling it is irresponsible for BNPL payment plans to be advertised in current circumstances – particularly older adults – speculation abounds that retailers are using these schemes to shift stock in a bid to recover from the effects of this year’s restrictions because shoppers are less likely to abandon their shopping baskets if offered a delayed-payment deal.

More than a quarter of those people using BNPL schemes have done so because they couldn’t afford the purchase at the time.  

Various studies among BNPL users are consistently finding that a significant proportion directly link them to spending more than they otherwise would have – including 60 per cent of Generation Z and millennial customers, according to research by debt app Freeze Debt.

Almost inevitably, even before lockdown, almost half of BNPL users had missed at least one payment, incurring fees and credit score implications while struggling to pay back other repayments including on credit cards, loans and overdraft fees.  

And while half of us don’t regard money owed on BNPL services as “real debt” – a concerning figure in itself – the impact on our mental wellbeing, now and in the future, is at risk, experts warn.  

Commenting on a recent investigation into these schemes by the Money and Mental Health Policy Institute, Gareth Shaw, the head of money at Which?, said:

“It’s important that retailers and buy now, pay later firms act responsibly, so it’s concerning that people with mental health problems risk being persuaded to spend more than they can afford when buying products online, particularly as we head into the Christmas period.  

“As the buy now, pay later industry grows rapidly, the financial regulator needs to look at what safeguards these firms have in place to stop people from racking up large bills that they can’t pay back. It should also examine whether customers are losing out as a result of weaker consumer protections compared to other forms of credit.”    

Meanwhile, new guidance comes into force this week on newly extended payment freezes for firms providing buy now, pay later services, as well as personal loans, credit cards, store cards, catalogue credit, rent to own, pawnbroking, motor finance and high-cost short-term credit.

The Financial Conduct Authority has urged consumers to keep up with payments on loans and credit products if they can afford to do so.  

But those who have not yet had a payment deferral or who have had a deferral of less than six months and need further help will be eligible to apply for payment deferrals of up to a maximum of six months in total.  

Firms should offer alternative, “tailored support” if a deferral isn’t in the customer’s best interests or they have already taken a six-month freeze.  

If consumers are struggling with an overdraft they should also seek individual help from their bank.

A payment deferral under the latest plans would not be reported as missed payments on a consumer’s credit file, though tailored support may appear.