Debt for the workers

The [so-called] middle classes have become the latest victims of the spiralling debt crisis because of “super-inflationary” rises in the cost of living, a leading debt group said yesterday.

The Consumer Credit Counselling Service said that while steep rises in energy and mortgage costs had hit the oldest and poorest hardest, the increases had been so dramatic that even the professional classes were struggling. Experts said that the figures marked a more serious era in the country’s battle with debt because they showed that the problem had extended from borrowers with credit cards and personal loans to all households, irrespective of how much they had borrowed or what they earned.

Rises in mortgage costs have had a disproportionate impact on higherincome earners because they spend more of their disposable incomes on property, the counselling service said. It found that this group now spends 44 per cent of their net salary on their rent or mortgage, up from 34 per cent five years ago; households below the poverty line spend 8 per cent.

The figures came after Citizens Advice Bureaux reported a 35 per cent increase in inquiries from homeowners worried about paying the mortgage.

Experian, the credit reference agency, published a debt map of Britain yesterday, giving a breakdown of how much towns and cities owe. Residents of Chester-le-Street have borrowed the most on credit cards and loans, with an average amount outstanding of £5,248. Borrowers in Northern Ireland owe the least, with an average of £2,291. Experian said that mortgage balances had grown the most in areas that had experienced the highest house price growth in the past 12 months, such as Northern Ireland, Kensington & Chelsea and Wandsworth.

The average fuel bill has reached more than £1,000 a year after recent price rises by energy companies, while the average home loan went up by almost £9,000 between 2006 and 2007, from £118,536 to £127,039, the Council of Mortgage Lenders said.

Credit Action, another debt charity, said that second-home owners and older people who had taken out equity from their homes to help to fund their retirement were at particularly high risk from rising living costs, because of their exposure to the downturn in the property market as well as more expensive mortgage rates on these deals.

The counselling service said that the profile of those asking for help was becoming “older and poorer”. For the first time it found that customers over the age of 60 had the highest level of debt, at £29,642. The inflation rate for people over 75 is now 3.4 per cent, compared with an official inflation rate of 2.5 per cent, according to Alliance Trust, the investment group.
Other research showed that an increasing number of desperate homeowners are resorting to dangerous measures to get out of debt. In the past three years 6.5 million mortgage borrowers have lumped separate credit card and personal loan debts into one, according to Moneyexpert.com

The director of Credit Action, said: “This is a new era for the UK’s debt crisis. Previously, debt problems were confined to people with credit cards and loans. Now, everyone is struggling with essentials, such as utility bills and mortgages.”