How 10 million Britons are falling into a black hole of debt !
Cut! The Bank of England is under increasing pressure to cut base rates to prevent triggering a disastrous slowdown in the economy
More than ten million adults are teetering on the brink of the financial abyss because they cannot cope with rising mortgage payments and other debts.
A study paints an alarming picture of a large section of the population that is gripped by money troubles.
Almost one in four – 23 per cent – fear their current borrowing is already unmanageable or is about to become so.
Meanwhile 12 per cent – 5.4million – have missed payments on debts and bills in the past six months.
Around ten per cent had a direct debit, cheque or payment bounced by their bank over the same period.
About three per cent even fear they are about to lose their home.
Five interest rate rises since August last year have added more than £100 a month to repayments on the majority of mortgages, while personal loans, overdrafts and credit cards are also more expensive.
However, the pain has been compounded by the impact of the global credit crunch.
Banks are chasing more borrowers through the courts to pay up, while they are turning down up to half of applications for credit cards and loans.
The research revealing the debt paralysis was commissioned by financial website uSwitch.com.
It is backed up by other studies published today by Mintel and Moneynet.co.uk.
Debt-ridden Britons owe some £1.3trillion to banks and finance companies, and uSwitch found the average person now sees over half of his or her monthly take-home pay eaten up by mortgage repayments and other debts.
Ann Robinson, uSwitch’s director of consumer policy, said: « This is crunch time for consumers and it couldn’t come at a worse time of year.
« In the run-up to Christmas, traditionally one of the biggest periods of consumer spending, people are concerned about their jobs, their homes and their ongoing ability to manage their debts and bills.
« The days of easy credit and the ‘buy now, pay later’ culture may be numbered, but they will leave a painful reminder for those left struggling with debt.
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Alarming: Almost one quarter of Britons feel their borrowing has become unmanageable
« The credit crunch will claim casualties – it will be enough to tip some over-indebted households over the edge. »
Retail and finance analysts Mintel said that as many as one in three mortgage-holders – more than five million – face real financial hardship due to being relabelled as sub-prime, or high-risk, debtors.
Mintel estimates that nine per cent of the UK’s 16.5million mortgage-holders will now be considered sub-prime by lenders as a result of falling behind on debt repayments.
But it said a further 24 per cent could also be considered a high risk because of their personal circumstances. They may be self-employed, they may have fallen behind on bills or moved frequently.
As a result, they will find it more difficult and expensive when they come to remortgage or move home.
People in this category generally have to pay much larger mortgage application fees and higher interest rates than the rest of the population.
Research by finance website Moneynet found interest rates on credit cards available to the high-risk group can be « shatteringly high » – as much as 59.9 per cent – while they may have to pay a mortgage rate of 9.99 per cent.
Earlier this week, accountants PricewaterhouseCoopers predicted a sharp rise in the number of people going bust in the New Year.
Separately, the Council of Mortgage Lenders predicted 30,000 home repossessions this year and another 45,000 in 2008.
The figures will heap pressure on the Bank of England to cut the base rate in order to head off a personal crisis for thousands that could trigger a disastrous slowdown for the wider economy.
Roger Mills: £30,000 card debts
Credit crunch may leave me bankrupt
Recruitment consultant Roger Mills, 38, fears a downturn in the market could make him bankrupt despite a previously good credit history.
After setting up his own business 18 months ago and buying a house six months later, he has credit card debts of £30,000 and an overdraft of £4,000 just as the credit crunch is starting to bite.
Mr Mills, who lives in Surbiton, Surrey, with wife Caroline, has since had applications for loans and credit cards turned down.
He said: « I had to put some money into the business – there are rising costs and I have had to max out a couple of my credit cards.
« At my previous job, I wasn’t used to worrying too much about money, but now when I get asked for dinner by a friend I sometimes have to think of an excuse.
« I haven’t missed any repayments so far, though I have been late a couple of times because I had to organise where the money was coming from.
« I feel my debt is manageable, but if the climate changes, the credit crunch could lead to bankruptcy and homelessness for people like me. »