Housing charity Shelter says research showing millions of families using unsecured borrowing to pay housing costs is evidence of a debt spiral
Almost a million people have turned to a high cost payday loan to cover their mortgage or rent in the past year, the homelessness charity Shelter has claimed.
A further 6 million have used other types of credit, including unauthorised overdrafts, other loans or credit cards, to help pay their housing costs, it said.
Shelter said the research, based on a survey of more than 4,000 people, revealed a “spiral of debt that people are falling into in order to keep a roof over their head”, and urged struggling borrowers to take advice urgently.
Payday loans are small, unsecured loans marketed as a way for people to tide themselves over until their next pay packet. The loans attract high interest rates and campaigners argue their high cost means poor borrowers can be sucked into a cycle of debt, taking out additional loans as they struggle to repay their existing borrowing.
Shelter said it had carried out the research after seeing an increase in the number of people telling its debt advisers they had used the loans. Chief executive Campbell Robb said: “These shocking findings show the extent to which millions of households across the country are desperately struggling to keep their home.
“Turning to short-term payday loans to help pay for the cost of housing is totally unsustainable. It can quickly lead to debts snowballing out of control and can lead to eviction or repossession and ultimately homelessness.
“Every two minutes someone in Britain faces the nightmare of losing their home. We urge every single one of these people now relying on credit to help pay their rent or mortgage to urgently seek advice.”
Housing minister Grant Shapps said: “The sheer scale of the global slowdown has left many hard working families struggling to make ends meet. So I would urge anyone who is getting into difficulty to seek help in getting their finances back on track.
“Assistance can be sought by searching online for the government’s mortgage help website or by visiting organisations who can provide free, independent guidance such as Citizens Advice. The quicker households act to get help, the more options they will have available to them.”
In December 2011 the government warned that companies providing expensive short-term credit could face tougher rules. David Cameron’s spokesman also said a cap on the often extortionate interest rates had not been ruled out, but indicated that a voluntary code of practice was preferred.
Martin Lewis, founder of the MoneySavingExpert website, said the UK was “the crock of gold at the end of the rainbow for the world’s payday lenders” who faced tougher regulation elsewhere.
“It is incredibly worrying there is now evidence of people using payday loans to meet housing costs. Many struggling with core rent or mortgage commitments will struggle to repay payday loans on time too.
“While it is an obvious temptation to grasp these loans as a lifeline, in the long run it may hurt more than help.”