Consumers are being forced to live on credit as the cost of living skyrockets, with approximately 4.1million households using credit cards and loans to bridge the gap between income and outgoings. Mortgage
rates have been increasing since the credit crisis struck last year, as lenders tighten their criteria to limit who they lend to and increase the size of deposit required to get a competitive deal.
Research from moneysupermerket.com has found that 1.8million households have taken out a loan
in order to pay rising mortgage or rent costs.Credit cards
have been the source of funding for 2.3million households who are turning to plastic in order to keep up with rising mortgage, food and fuel bills. For people in their forties, 20 per cent have been forced to use credit in order to make ends meet.
The research found that there is £30billion worth of mortgages that will come to the end of a fixed rate this month, which means that the number of people turning to credit to pay the bills could rise further as they struggle to find ways of keeping up with higher mortgage payments.
"It's a very serious situation when you have people turning to a short-term solution to fund a long-term product." said Tim Moss, head of loans and debt at moneysupermarket.com. "Having a roof over your head has to be your top priority but to be funding that with a loan you might default on or with a credit card that will eventually charge you interest of over 15 per cent isn't the solution in the long term."
He urged homeowners to remember that taking out a loan specifically for the purpose of paying a mortgage violates lenders' rules.
To alleviate the situation, moneysupermarket.com recommends that people who are struggling rank their debts and outgoings in order of importance and pay for the most crucial ones first, such as mortgage payments, rent and food.
Mr Moss also points out that luxuries such as digital TV packages should be sacrificed as there is little point having one if they have no house in which to watch it.
In its Credit Conditions Survey for the second quarter of 2008, the Bank of England revealed that lenders have reduced the availability of secured and unsecured credit to householders, and have tightened their lending criteria.
Meanwhile, demand for mortgages has declined even more over the past three months than anticipated.
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