Wednesday, 17 October 2007

One million householders use credit cards to pay mortgages or rent

More than a million householders have used credit cards to pay their mortgage or rent in the past 12 months, according to a new survey published today by Shelter in its magazine ROOF.

In a desperate attempt to stay on the housing ladder a growing number of young people, including first-time buyers, are turning to credit cards, with almost seven and a half per cent of people aged 18 and 24 saying they had done so in the last 12 months.

The survey, conducted by YouGov for ROOF magazine, polled two thousand households following the Northern Rock crisis. Six percent of respondents who pay mortgages or rent said they had relied on a credit card to make payments, equating to a national figure of more than a million householders.

Shelter chief executive Adam Sampson described the results as shocking, and added: “The number of people hit by the credit crunch, interest rate hikes and unaffordable housing costs are rapidly rising.

“For many people trying to keep a roof over their head desperation is driving them to short-term, high-cost borrowing. Ordinary people are being forced to seek more risky and expensive ways to stave off the threat of eviction and repossession.”

Most credit card companies charge interest at between 15 and 18 per cent – nearly 50 per cent above even the highest mortgage interest rates of 11 or 12 per cent in the sub prime sector.

But for people with poor credit ratings the card companies can charge interest rates of up to 40 per cent, a staggering five times above the average mortgage rate.

Stuart Freeman, director of services at Community Housing Advice Service, which offers advice on housing and debt, said: “There is such pressure on people’s budgets that paying your mortgage or rent by credit card, then paying that card with another card is becoming the norm for many people.

“It leads to an ever spiralling maze of debt, and eventually the credit simply runs out.”

The poll also found the practice more prevalent in men than women with seven per cent of men admitting to using credit cards compared to six per cent of women.

The situation is worst in the Midlands and Wales with nine per cent – almost one in ten – households in the region using credit cards to keep a roof over their head. Northern England and London were closer to the national average at six per cent whilst Scotland polled at just three per cent.

Part of the problem stems from irresponsible mortgage lending allowing people to overstretch themselves financially, forcing them to use credit cards to stay afloat. However Heather Keates, Director of Community Money Advice, said lenders shouldn’t shoulder all the blame.

“If someone is making minimum payments on their credit card and they have four or five cards, when they are credit checked they don’t look like a bad risk because companies don’t have the whole picture.

She added: “It’s fine if you pay off the balance every month, but I would suggest that the majority of people don’t – they just pay off the minimum, so the debt starts to spiral.”

Shelter’s Adam Sampson continued: “Clearly this is a huge problem which will only become more widespread as housing costs continue to rise.

“We would urge anyone struggling with the cost of their mortgage or rent to seek independent financial advice or log onto urgently before resorting to such desperate, and ultimately more expensive, measures.”

In the ROOF magazine article, Damon Gibbons, Chair of Debt on our Doorstep comments:

"One in ten is a phenomenal figure and shows that people are significantly overcommitted. It shows they are concerned that they could face repossession action for not paying their housing costs and are keen to try and maintain those payments if at all possible."

He called for a national strategy for debt advice services to ensure access to assistance for those in financial difficulties:

"What is clear is that better advice is needed to help people rearrange their finances and pay less on unsecured credit before this problem escalates. We don’t have a national strategy for debt advice provision and somebody has got to address this issue fast."

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