Personal debt problems ‘leading to increased homelessness’

Homelessness is on the increase as a result of personal debt problems.

This is according to a new report released by the Centre of Social Justice (CSJ), which has found hundreds of people are being forced out of their properties every month because they cannot keep up with their mortgage or rent repayments. 

Personal debt is now collectively at £1.4 trillion, which means average household arrears have risen to £54,000 – this is nearly double what it was ten years ago. 

In the past five years, more than 26,000 UK households have been accepted by councils as homeless due to their arrears, which highlights the scale of the problem.

The debt trap 

If consumers are struggling to make ends meet, they should consider a debt management solution, such as an Individual Voluntary Arrangement, as burying their head in the sand will only make the situation worse.

Considering that interest rates have been at the historic low of 0.5 per cent since 2009, there is a fear that should they eventually rise, households will not be able to cope with the stress it will create on their finances, especially as they have already seen their energy tariffs rise recently. 

Christian Guy, director of the CSJ thinktank, said: "Years of increased borrowing, rising living costs and struggling to save has forced many families into a debt trap that is proving very difficult to escape. 
 
"Problem debt can have a corrosive impact on people and families. Our report shows how it can wreak havoc on mental health, relationships and wellbeing. Across the UK people are up until the early hours worrying about their finances and bills.
 
"Some of the poorest people in Britain are cut off from mainstream banking and have no choice now but to turn to loan sharks and high-cost lenders."

Poorest households bearing the brunt

The report also discovered that the poorest ten per cent of households have average debts that are four times their annual income. This is an unsustainable situation and demonstrates how important it is for people to develop a budget. 

Other findings from the study include that payday lenders have seen a significant rise in their usage. In 2008-09, they handed out around £900 million, but this figure had increased to over £2 billion by 2011-12.

Almost 50 per cent of payday loan customers admitted they turned to the credit option because it is the only one they can get accepted for. These people are likely to already have debts with mainstream lenders.

Former work and pensions minister Chris Pond, who led the study, said the rise in the basic cost of living, coupled with a fall in real income, means more and more people are sliding into debt. 

He added this is not just a financial issue, as stress, mental disorders and relationship breakdowns are all common when it comes to arrears. The former politician added there is also a cost to the nation as a whole through lost employment and productivity. 

By James Francis