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Debt 'Noose' For Families, Consumer Credit Counselling Service Warn

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A "debt noose" is tightening around households, with families paying almost £200 a month just in interest, a report warned today.

The "interest burden" recorded for the last three months of 2011 equates to almost a quarter (24%) of incomes after regular bills are paid, debt charity the Consumer Credit Counselling Service (CCCS) said.

This share rose by 0.1% from the third quarter of last year as living cost hikes outstripped wage increases, its Consumer Debt and Money Report said.

Older people will be increasingly affected by debt problems, the study said, highlighting a rising demand for debt advice from late-stage professionals aged between 45 and 59.

"There has been a gradual rise in counselling demand from this group, with its share rising from 22.8% in 2005 to 31.7% by (the end of) 2011," the report said.

Demand for debt advice will peak in 2014, indicating the "lasting distress caused by the financial crisis".

The charity said UK households' determination to pay down their debts has been slowing as disposable income has been swallowed up by high inflation, with expensive petrol, utilities and housing costs and deteriorating employment conditions.

The report said: "Interest payments are a heavy burden on household finances.
"With payment necessary regardless of economic circumstances, they pose a major threat to the solvency of many families.
"As a major spending component that must be met on time, the need to service debt is posing a significant challenge in the current economic downturn when household heads lose their jobs and income sources dry up."
The report predicted rising unemployment, but a "positive effect" of the weak economy for indebted households will be several years of low interest rates.

The ratio of one in every four pounds of disposable income spent on servicing debts increased to one in three earlier during the financial crisis as households piled on debt and then faced a deteriorating labour market.

Since the second half of 2009, the share of discretionary income going towards interest payments has been stable and the report predicted it will remain this way in the coming months.

The report also tracked the sharp increase in mortgage debt as house prices have risen, from around £20,000 per household in the early 2000s to more than £47,000 by December 2011.

It highlighted high rates of home ownership in the UK at 66% of households, compared with 42% in Germany.

"With rising property prices and rising borrowing, mortgage debt has grown in importance compared with other areas of household finances," the report said.

"This development is evident in the growing share of mortgage debt as a proportion of total household debt. This has risen from 80.3% in January 2000 to 86.3% by the end of last year."

Property repossessions began to increase in 2005, indicating households were already getting into trouble. Repossessions climbed until 2009 but have eased off.

The report said: "The last two years have seen some easing to about 36,500 but, apart from the middle of the crisis, they remain at the highest level since 2000."

CCCS chairman Lord Stevenson said: "While debt levels continue to decline, interest payments are a growing burden on too many UK households."

London and the North West have seen the highest demand for counselling, while Wales and Yorkshire and the Humber are areas with some of the fastest rises in demand for help.

Research was based on the charity's database and analysis by the Centre for Economics and Business Research (Cebr).

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