Inflation may be easing but mortgage, energy and council tax debts have risen sharply
A debt charity has revealed a dramatic rise in people behind with their mortgage payments.
StepChange says the average mortgage borrower coming to it for help is just over £12,000 in arrears. The figure marks a more than 70% surge from an average of a little over £7,000 in November 2023. It also highlighted a big increase in people with energy and council tax debts.
The discovery comes as some cost of living ravaged households are heading into 2025 drowning in a sea of debt. Despite a sharp fall in inflation, many people have seen their financial troubles deepen.
StepChange expects to have handled 600,000 cases in 2024. The figure is on par with 2023, even though living costs have begun to ease. But some types of debts have risen significantly.
Among mortgage holders seeking debt advice from StepChange, average arrears have rocketed by 71% year-on-year, from £7,037 in November 2023 to £12,038 last month. The jump comes despite interest rates beginning to fall. The Bank of England’s base rate has fallen to 4.75% – from 5.25% in the summer – but is up from just 0.1% three years ago.
Despite lenders insisting they want to help those behind with their mortgage, the number of claims made to repossess homes in England and Wales stands at a five year high. Data from the Ministry of Justice shows there were 6,525 mortgage possession claims in county courts in the three months to September, a 56% jump on the same quarter last year.
Meanwhile, the average person approaching StepChange in November owed £2,600 to their energy supplier, a 24% surge from a year ago. Household energy debts now at more than £3.8billion, a rise of more than £2billion in the last three years.
StepChange has seen average council tax arrears rise to £2,193, up from £1,807 in November last year, and a 21% year on year increase.
Richard Lane, chief client officer at the charity, said: “The people who are coming to us, the state of their finances is pretty exhausted.” He said the impact of, first the Covid pandemic, and then soaring inflation, had meant many people’s finances had failed to recover. “The reason for the debt has changed,” he explained. “Typically it would be a life shock such as divorce, losing a job or sickness.” Now it is more likely to be prices outstripping wages, with what StepChange says are a growing number of “complex” cases. “For a lot of people, it is very precarious,” Mr Lane went on. “There is nothing else they can do to cut back. “They are having to borrow if the car breaks down or the boiler stops working. It is the cumulative effect.”
Separate figures from consumer group Which? tell a similar story. In the four weeks to mid-December, it saw a 2.2 percentage points increase in the proportion of households missing a housing, bill, loan or credit card payment, to 7.9%. The rise in financial difficulties among households this December is unusual, says Which? Historically, missed payment rates tend to decrease this month. The 7.9% of those in its tracker who had missed a payment compares with 6.5% in December last year, 6.7% in 2022 and 6.1% in 2022.
The trend has increased across all household types. However, the increase was most prominent amongst working age parents.
Sam Richardson, deputy editor of Which? Money, said: “It’s really worrying that missed payment levels have increased this month, with more than half of consumers having to make at least one adjustment to cover essential spending. December is often the most expensive month for many households due to additional pressures such as higher heating bills and Christmas spending. We would urge anybody who’ is struggling with their finances at this time to seek free debt advice, from somewhere such as the debt charity StepChange, and to contact their mortgage provider or landlord for help.”
Tips for if you are in debt:
- When you’re swamped with debts, it can often seem impossible to find a way out. A good starting point is making a list of your debts, including all the relevant contracts, bills and statements.
- Write down the details of each debt, taking in who you owe the money to – this is your ‘creditor’ – when you first missed a payment.
- The list should include account or reference numbers – these might be at the top of your statement – as they will be needed when contacting those you owe money to.
- Try not to worry when you see all your debts written down – the important thing is that you’re sorting them out.
- Work out which debts to deal with first. Priority debts are those that can cause you particularly serious problems if you don’t do anything about them. These are likely to include mortgage or rent arrears, council tax, court fines or energy debts.
- Check if you can increase your income. You might be able to increase your income by doing things like claiming benefits or government grants, getting help from charities, renting out a room, or getting child maintenance.
- Try to reduce your regular outgoings. Chances are you have already done this but look at getting a discount on your council tax, get a water meter fitted, or switching to a cheaper broadband, TV, or phone deal.
- Check your options for getting out of debt. You might be able to talk to your creditors and arrange a way to pay them, or make a formal agreement called a ‘debt solution’.
- Making a plan to pay your debts. If you are struggling to pay debts like credit cards, store cards or payday loans, you can ask to make lower monthly repayments. Paying less than it says you have to in your contract might make it harder for you to get credit in the future.
- Work out what you can afford to pay. Set a budget so you know how much you have left each month after paying your essential bills and priority debts. This is called ‘available income’.
