A leading debt charity has warned that increasing numbers of families are likely to turn to credit cards and loans “to bridge the gap between their income and expenses,” as winter approaches and energy bills mount.
Higher mortgage payments and rent increases, as well as rising food and energy bills, can also force homeowners who have never been in debt to borrow to make ends meet.
“It is important to realize that using credit specifically to cover essential spending carries risks, especially for someone who has less financial flexibility and may find their only option is high-cost credit,” said Sue Anderson, a spokeswoman for debt charity StepChange.
The Bank of England raised interest rates by 0.75% to 3% on Thursday – the largest single rise since 1989 – meaning thousands of households will see their mortgage payments rise. Banks and other lenders are likely to take advantage of the opportunity to increase the cost of loans and other credit cards.
Jane Tully, director of external affairs and partnerships at Money Advice Trust, agrees with Anderson.
“As the incomes of millions of people are already unable to keep up with rising prices, more people are forced to turn to credit to cover necessities.”
The charity said one in five new StepChange customers who seek help, now cite the cost of living as the main cause of their debt problems.
The unexpected loss of income due to ill health and redundancy has been overtaken as the biggest factor for people seeking support with their debts, as the rising cost of living means they struggle to make ends meet.
The charity Al-Mashara said it has not yet seen an increase in client debt, but that this presents a risk as the cost of living crisis intensifies during the winter.
Victor Trokodis, CEO of savings app Plum, said: “Most families have not noticed the impact of higher interest rates on their home loans because they are still locked into fixed rate deals.
“As more and more households are re-mortgaging, it will add more pressure on people’s budgets, which may cause desperate households to resort to additional unsecured borrowing. While the demand for credit is expected to increase, it may be difficult Many people get approved for traditional products like loans and credit cards.
“Since the global financial crisis, banks have had strong standards of affordability,” said Peter Hewlett, head of financial technology at PricewaterhouseCoopers. “This means that those who have historically relied on emergency credit, may find approval of a loan or credit card more difficult.
“We expect the use of other payment options, such as ‘buy now, pay later’, or payments that are split over several months, to be heavier for this reason as people try to keep money for necessities.”