Published: 10 MARCH 2020
  • One in ten people in the UK (13%) rely on overdrafts to cover the cost of rent and mortgage payments – the equivalent of 1.2 million**
  • Nearly one-third of current account holders (30%) go into their overdraft due to running out of money at the end of the month
  • In response to regulatory changes, the majority of high-street banks have announced an increased flat fee of 39.9%.

February 2020 – While most Britons can manage their finances, some are struggling to make ends meet, relying on expensive overdrafts to cover costs. New research from comparethemarket.com reveals that nearly one third of UK adults (30%) have to dip into their overdraft because they have run out of money before the end of the month.

Many people are not able to save for a rainy day. The research found two-fifths (40%) use their overdraft for emergency funding and nearly one quarter (23%) use them to cover the cost of everyday bills which is concerning.

Worryingly, one in ten (13%) use their overdraft to cover the cost of their mortgage or rental payments - the equivalent of 1.2 million people**. Of these, one fifth (20%) use their overdraft to cover the full payment amount, while a quarter (24%) use it to cover, on average, half of the cost.

Rents are rising at their fastest pace for three years, with the average rental price nationally standing at £886. The average mortgage payment is £680 per month***.  When it comes to paying monthly bills, overdrafts can be a very expensive way to manage debt due to fixed daily or monthly charges, as well as fees for having an overdraft facility in place.

From 6 April 2020, new FCA rules mean these charges will be scrapped and banks must charge a simple annual interest rate for overdrafts, without additional fees and charges. This move is designed to make overdrafts simpler, fairer, easier to manage as well as easier to compare between current account providers.

In response to the regulatory changes, a growing number of high street banks have announced a flat fee of 39.9% on all overdraft fees***. So far, only Lloyds and challenger banks Starling and Monzo have announced a different percentage, which will be tied to customer credit scores. According to the research, over a third (37%) of individuals believe that the flat rate of 39.9% will end up costing them more money.

John Crossley, Head of Money at comparethemarket.com said
During the course of life we will all have rainy day moments when we’ll need to use emergency funds. On these occasions, people need pots of money to dip into – a savings nest egg. Relying on overdrafts to fund regular bills, including mortgage or rental payments, can be a costly way of managing household finances.

“With the rise in overdraft fees, there are other solutions available to pay off debt in a responsible way.  Borrowers should ensure they only borrow what they can repay and use a soft eligibility checker to prevent damaging their credit score.  Anybody struggling to make repayments should contact their provider in the first instance.

Notes to editors:

Polling data was conducted by Populus in a survey 2,123 UK adults between 3rd-6th January 2020

**Headline figure: Over 1.2 million UK borrowers use their overdraft to fund rent or mortgage payments

  • ONS English Housing Survey 2018-2019: 15 million UK owner occupied
           - Of these, 34% owned with a mortgage (p8) =        5,100,000 individuals
           - 4.6 million renters (p3)
  • UK wide figure = 9,700,000 individuals (5,100,000 + 4,600,000)
  • From the survey, 1,261 UK individuals have a current account with an overdraft. 13% relied on overdraft to cover the cost of their mortgage or rental payment
  • 13% of 9,700,000 = 1,261,000

***Hometrack Rental Market Report Q4 2019: Average rental price is £886pcm. UK rental growth is up +2.6% annually to £886 pcm in Q4 2019 – the highest rate in three years.

***ONS Expenditure on mortgages by mortgage holders: Table 2.9: Weekly mortgage payment is £156.50. £156.50 x 4.345 = £679.99 per month

***Old versus new overdraft rates being introduced by lenders for standard current accounts. 

Bank account Old overdraft rate New rate  Being introduced Fee-free buffer? 
Nationwide FlexAccount 18.9%  39.90% 11th November 2019  No
HSBC Advance  17.9%  39.9%   1st April Below £25 
First Direct 15.9%  39.9%   14th March   Below £250 
Barclays Currently up to £3/day 35% 22nd March No 
RBS 19.90% 40% 27th March No 
Lloyds Bank Borrowing £1,250: 1p for every £6

Borrowing between £1,250 and £2,500: 1p every further full £7

Borrowing over £2,500: 1p every further full £8
27.5% or 39.9% (dependent on current account and credit information) 6th April No
Natwest Select 19.90% 40% 1st April No
Metro Bank 15% 34% 25th April No
M&S Bank  15.9%  39.9%  14th March Below £250 
Monzo  50p per day above £20 19%/29%/39% (dependent on credit score)  April 2020   No 
Starling  15% 15%/25%/35%
(dependent on credit score)  
April 2020   No 
Santander £5 monthly fee and currently up to £3/day 39.9% 6th April 2020 No

About comparethemarket.com

comparethemarket.com was launched in 2006 and has grown rapidly over the past fourteen years to become one of the UK’s leading price comparison websites.

comparethemarket.com provides customers with an easy way to make the right choice for them on a wide range of products including motor, home, life, travel and pet insurance as well as utilities and money products such as credit cards and loans.

comparethemarket.com actively works with its brand partners to help provide great services to customers.
comparethemarket.com and comparethemeerkat.com are trading names of Compare The Market Limited. Compare The Market Limited is an insurance intermediary, which is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 778488).