Rising Mortgage Debt: Why More UK Homeowners are Turning to Credit to Pay for their Mortgages
November 15 2024
November 15 2024
In recent years, a growing number of UK homeowners have found themselves facing a financial balancing act. With the cost of living still rising, economic instability and fluctuating mortgage rates, some people are resorting to credit cards and personal loans to make ends meet. This troubling trend sheds light on the pressures that households are facing, the challenges of using credit to cover mortgage costs, and what this means for the future of housing in the UK.
The UK’s Mortgage Squeeze
The current financial landscape is proving challenging for mortgage homeowners. Last week, the Bank of England announced a 0.25% decrease in the base rate, offering a glimmer of hope to borrowers. However, that optimism was short-lived. This week, five major UK banks increased their mortgage rates, leaving many homeowners concerned about the future.
The Financial Conduct Authority (FCA) reported earlier this year that 200,000 households are expected to fall behind on their mortgage payments due to rising interest rates. According to research from StepChange Debt Charity, almost one in seven UK adults have used credit to cover essential bills or living costs, including mortgages in the past year. Their data shows that an increasing number of people are using credit cards, overdrafts, and unsecured debt simply to stay afloat—a temporary fix that only adds to their debt burden.
The Risks of Using Credit to Pay Mortgages
While using credit to cover mortgage costs may fix things in the short term, it comes with significant risks.
StepChange reports that the number of clients in arrears on secured debts, like mortgages, has increased by 14% over the last year. Additionally, the rise in people using credit to cover housing costs signals a troubling trend: the inability to make mortgage payments is no longer a problem confined to the most vulnerable. It is now a widespread issue affecting people from various income levels across the UK.
The Reality of Repossessions
The pressure to borrow is only expected to worsen as economic forecasts predict ongoing inflation and further increases in essential costs. For those who are already stretched thin, borrowing more could mean facing the harsh realities of debt collection, repossession, or even bankruptcy.
While repossessions remain relatively low compared to the financial crisis of 2008, they are on the rise. The number of homeowners struggling to pay their mortgage is increasing. Lenders are reporting a rise in customers defaulting on mortgage payments, leading to a surge in repossession orders. According to UK Finance, the number of repossessions rose by 15% in the first half of 2024, compared to the same period last year.
Looking Ahead: A Call for Financial Awareness
As rising costs continues to challenge UK households, it’s more crucial than ever to find a more responsible approach to borrowing. Homeowners should be aware of the potential pitfalls of relying on credit to cover housing costs and seek out responsible lenders and organisations who can offer guidance and support. It’s time to rethink how we use credit.
Get help with cost of Living – Citizens Advice
Cost of Living Support – Gov.uk
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The above information does not constitute financial advice and should not be considered as such. It is intended to support individuals by signposting them to relevant services that may be able to support them.
References:
1. Conduct Authority – Mortgage Challenges: FCA Mortgage Report
2. StepChange – Mortgage Credit Press Release: StepChange Report
3. UK Finance – Mortgage Repossessions 2024: UK Finance Report