Posted on January 5th, 2012 | Categories - News
New research from the housing charity Shelter has shown millions of people have resorted to unsecured borrowing to meet their monthly mortgage or rental payments over the past year.
According to Shelter almost a million people used payday loans to help them pay their mortgage or rent and an additional six million people had to use loans or credit cards.
Shelter carried out the research, speaking to more than 4,000 people, following a surge in the number of people telling their debt advisers they had taken out loans to meet mortgage and rental payments.
Shelter said the results showed a “spiral of debt that people are falling into in order to keep a roof over their head”.
Expensive payday loans
Payday loans, as the name would suggest, are small unsecured loans designed to help those people struggling to make ends meet until their next payday.
The poor economic climate, coupled with rising unemployment and a squeeze on state benefits has caused financial hardship for many. Earlier this week a study by the Institute for Fiscal Studies showed that families with two children would see their household income fall by £1,250 per year by 2015/16; families with three and four children will be even worse off.
It is clear that many people have to turn to unsecured credit to help make ends meet; the number of people turning to payday loans though is particularly worrying.
Financial experts have warned that payday loans are an extremely expensive way of borrowing money. The high interest rates, often well over 1000% APR, can cause borrowers to fall into a spiral of debt, which they often struggle to get out of using one loan to repay another.
The government warned in December that companies providing short term unsecured lending, at expensive rates of interest, which would include payday lenders, would face stricter rules. However, what whilst a cap on the interest rate which could be charged has not been ruled out the government seem to prefer a voluntary code of practice.
Reacting to the survey, Shelter chief executive, Campbell Robb, said: “These shocking findings show the extent to which millions of households across the country are desperately struggling to keep their home.”
Mr Robb continued: “Turning to short-term payday loans to help pay for the cost of housing is totally unsustainable. It can quickly lead to debts snowballing out of control and can lead to eviction or repossession and ultimately homelessness.”
“Every two minutes someone in Britain faces the nightmare of losing their home. We urge every single one of these people now relying on credit to help pay their rent or mortgage to urgently seek advice.”
Speaking for the government housing minister Grant Shapps said: “The sheer scale of the global slowdown has left many hard working families struggling to make ends meet. So I would urge anyone who is getting into difficulty to seek help in getting their finances back on track.”
Mr Shapps continued: “Assistance can be sought by searching online for the government’s mortgage help website or by visiting organisations who can provide free, independent guidance such as Citizens Advice. The quicker households act to get help, the more options they will have available to them.”