Nearly half of mortgage holders in the UK are facing difficulties in keeping up with their bills and credit commitments, warns a leading debt help charity. A YouGov survey conducted for StepChange revealed that 45 per cent of borrowers are struggling to meet their financial obligations.
According to StepChange, 40% of mortgage holders are displaying signs of financial difficulty, while an estimated 10% are believed to be in "problem debt". Financial distress indicators include making only minimum repayments on debts, relying on overdrafts for the past three months, using credit or loans to make it to payday, falling behind on essential household bills, using credit to manage existing credit commitments, incurring late payment or default charges, missing regular monthly payments, and resorting to credit to cover essential household expenses.
StepChange defines "problem debt" as experiencing three or more of these circumstances. The release of these figures coincides with expectations of the Bank of England raising the base rate for the 13th consecutive time on Thursday.
With the base rate currently at 4.5%, there have been forecasts of a possible increase of 0.25 or even 0.5 percentage points, due to persistently high inflation. According to UK Finance, a 0.25 percentage point increase could result in an additional £23.71 per month for the average tracker mortgage payment, while a 0.5 point increase could raise it by £47.43. There are currently 639,000 outstanding residential tracker mortgages.
For those with standard variable rate (SVR) mortgages, a 0.25 percentage point increase could mean an extra £15.14 in monthly repayments, while a 0.5 percentage point increase could add £30.28. These calculations are based on the mortgages currently in existence. SVRs are determined by individual lenders, although they typically follow base rate fluctuations.
Outstanding residential SVR mortgages amount to 773,000. Although the majority of homeowners have fixed-rate mortgages, approximately 2.4 million agreements are set to expire by the end of next year.
Chancellor Jeremy Hunt is scheduled to meet with banks on Friday to discuss possible assistance for borrowers struggling with their mortgages. Lenders have expressed their readiness to provide support. They may offer various options based on individual circumstances, such as extending the mortgage term, implementing a temporary payment holiday, or temporarily transitioning to interest-only payments.
StepChange CEO Vikki Brownridge stated that their mortgage advice team has observed a significant rise in borrowing costs among clients. The average monthly payment for a typical-sized mortgage has surged by approximately £300 since September 2022. Brownridge emphasized the importance of proactive engagement by lenders and fair treatment of borrowers. She urged firms to offer early support to customers displaying signs of financial difficulty and to provide effective referrals to free debt advice services.
Ms Brownridge advised individuals concerned about their mortgage payments to seek assistance promptly, either by discussing options with their lender or by seeking free and impartial debt advice from organizations like StepChange. She highlighted the availability of StepChange's dedicated free mortgage advice service, which welcomes anyone, regardless of whether they are currently in problem debt.
The YouGov survey commissioned by StepChange involved more than 2,100 participants across the UK in May 2023. Chief economist Alfie Stirling of the Joseph Rowntree Foundation called for the Bank of England to pause and assess the existing effects before they become irreversible. Stirling emphasized the need to rebuild the country's income safety net to accurately reflect the cost of essential items. He also advocated for investments in reducing the UK's vulnerability to future price increases, including through stronger public services, housing market reforms, and improved energy efficiency and security.
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