4 million on brink of debt meltdown
‘It will only get worse’
MORE than four million people are living on the brink of financial meltdown, a major report revealed yesterday.
The biggest study of the state of the nation’s finances by the City watchdog found vast numbers are struggling to get by every month and would be pushed over the edge by unexpected bills or losing their job.
Many are forced to take out expensive payday loans or borrow from family and friends to meet their bills. Others would struggle to cope if their mortgage rose by just £100 a month.
The report from the Financial Conduct Authority, based on a survey of 13,000 people, comes amid warnings that the country faces a personal debt crisis.
One in 12 respondents – amounting to 4.1million around the country – admitted they had missed bill payments in at least three of the past six months.
Experts said last night that many families had buried their heads in the sand about the scale of the loans and credit card debts they had racked up.
Some will be unable to cope if the Bank of England raises interest rates next month, the analysts warned.
The rumoured increase would be the first for a decade and immediately cause mortgages costs to leap for the 3.7million households on variable rate deals.
Former pensions minister Baroness Altmann said: ‘We have got to get Britain saving again. We can’t keep living on debt. It needs to become much more difficult for people to borrow. Households have been piling up debts for years and now we are seeing signs that people are starting to struggle, which will only get worse when rates rise.’
Gillian Guy, chief executive of Citizens Advice, said: ‘This lends further evidence that there is a growing debt problem in the UK.
‘The rising debt and precarious financial situation many families are in should be a serious concern for the Financial Conduct Authority and the Government.
‘Anyone who is struggling with their finances should seek help sooner rather than later in order to stop the problem escalating.’
Households have amassed £203billion of debt on credit cards, car loans, overdrafts and other loans, according to the Bank of England’s latest figures.
Yesterday’s report found nearly 14million people are only ‘surviving’ financially. This meant they would struggle to get by if they lost their job or received a big unexpected bill, the FCA said.
Some households are in such a dire financial position that they would not be able to cover their living costs for a week if they lost their main source of income, the City watchdog added.
More than 1.2million struggling homeowners would not be able to pay their mortgages if their payments went up by less than £100 a month, despite rates being at near record lows.
Some 6.5million have no savings, indicating that many do not have anything left to set aside at the end of each month. This has resulted in 12.9million being forced to dip into their overdraft in the past year, the report found.
Of these, 3.1million have been clobbered with penalties for exceeding their overdraft limit or for overdrawing without their bank’s permission.
The most vulnerable are more than twice as likely to take out payday or doorstep loans, the FCA said. Over the past year 3.1million have taken one or more of these loans, which can have interest rates of more than 1,600 per cent and can damage borrowers’ chances of getting a mortgage.
Andrew Bailey, chief executive of the FCA, said: ‘The findings give us a wealth of information which will be used to increase our knowledge and understanding of the issues affecting consumers and how best to protect them.’
Joanna Elson, of the Money Advice Trust, a debt charity, said: ‘These findings confirm the scale of the financial issues that millions of people in the UK face. Millions are already struggling to pay bills.
‘With this week’s announcement of inflation rising to 3 per cent, increasing living costs, low wage growth and a likely increase in interest rates, we are concerned more families with already squeezed household budgets will be pushed into difficulty.’
James Daley, of the consumer website Fairer Finance, said: ‘It’s frightening. When rates start to rise you’ll see lots of homeowners and people with credit cards simply unable to pay their debts.’