The study, carried out by the Consumer Credit Counselling Service, revealed that households are paying nearly £200 in interest payments, in addition to repaying the amount they originally borrowed.
The amount was published in the quarterly Consumer Debt and Money Report and showed an increase on the amount being spent on debt interest of around 0.1%. Previous studies carried out by other bodies had shown a decrease in savings and an increased drive to pay off debt, reducing outstanding balances but this trend appears to have come to an abrupt halt. The cessation of the debt reduction focus has been primarily caused by less disposable income for many individuals, with an increasing amount of their cash being eaten up by inflation. Petrol, housing costs and utility bills were highlighted as particular culprits by the CCCS, exacerbated by worsening employment conditions.
The report described interest payments as a ‘heavy burden’ on the budgets of Britain’s households and warned that it represented a ‘major threat to the solvency’ in many families. It went on to say that difficulties were arising because debt repayment is expected to be met immaterial of the individual’s circumstances and, as household income ‘dries up,’ it becomes a ‘significant challenge.’
Researchers found that older individuals were finding debt a particular problem with more people than ever obtaining debt advice to help them out of a financial fix. Professionals aged between 45 and 59 were identified as a group increasingly at risk of suffering from unmanageable debts, with the percentage of debt counselling demand from this group increasing to 31.7% in 2011, from 22.8% in 2005.
And for those hoping for a respite sometime soon, the report had more bad news. The publication forecast a weak economy for some time to come with ‘rising unemployment’ continuing to be a challenge for the UK. Demand for professional debt advice is expected to hit its peak in 2014. However, amongst the doom and gloom there was a bright spark, as the fiscal difficulties mean that interest rates are likely to remain low, helping out millions of homeowners.
Research also revealed that repossessions had retreated from the peaks seen during the worst of the recession in 2009 although they still remained the highest seen since 2000, at around 36,500. However, the report from CCCS also said that in the UK the number of individuals who owned their own home rather than renting was much higher than in other European countries such as Germany, a fact which was increasing the pressure on UK household budgets. In Germany, just four in ten people are homeowners compared to nearly two out of three in the UK.
The north west of the country along with London has seen the largest demand for debt counselling, whilst Humber, Yorkshire and Wales have experienced the most rapid increases in recent times.
The analysis was carried out by the Centre for Economics and Business Research and despite the squeeze on finances, experts pointed out that the situation was relatively stable. Although one pound in every four of disposable income is spent on paying off interest on debts, this figure has remained constant and is not expected to radically change over the coming months.
The head of the CCCS, Lord Stevenson, acknowledged that the amount of debt in the UK is starting to decrease but warned that the current level of interest payments was continuing to cripple the nation, with ‘too many’ households stretched beyond breaking point.