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British adults are £1,189 more in debt than they were a year ago

The financial impact of the pandemic has been felt everywhere in the UK. Data from The Money Charity shows that for many, it’s not only affected savings and investments but also overall debt. Between June and August 2021, an average of 305 people a day in England or Wales declared insolvency or bankruptcy.

Added to this, figures from the Office for National Statistics show that by December 2020, almost nine million people had to borrow money to make up for a reduction in income or additional expenses during the pandemic. People on lower incomes were more likely to get into debt, need to borrow money or have their finances affected as a result of the pandemic.

How the country is faring

When it comes to personal debt, it turns out the UK is not faring so well. In fact, Brits are now £62.9 billion more in debt than they were back in July 2020. This equates to an extra £1,189 in debt per adult.

The average household now has a debt of £62,670, including a mortgage. This translates to £32,931 per adult. Perhaps more scary is the fact that estimates for 2025 see the total rising to an average of £82,641 per household if things continue moving in the same direction.

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If you take away mortgages, the average adult in the UK now has about £3,734 in unsecured debt, including £1,067 in credit card debt. For those making the minimum payment, it will take 24 years and nine months to repay the entire amount.

Dealing with your debt

If you’re one of the many Brits struggling to keep up with bills, a good first step is to tally up everything you owe. This includes not only credit cards and loans but also household bills you might have fallen behind on. Research shows that over six million Brits have fallen behind on at least one household bill as a result of the pandemic, and a significant 1.2 million haven’t been able to keep up with their rent payments.

Once you understand what you really owe, it’s time to make a few phone calls to your providers to figure out payment plans or see if you can get extra time to pay. This is important for things like your mortgage, as The Money Charity points out that more than two properties a day were repossessed between April and June this year for missed payments.

Reducing expenses

Since the end of the lockdown, expenses in the average household have increased significantly. This is good news for the economy, as people are shopping and eating out again. But as a consumer, if you’re not careful, it can spell trouble for your bank account.

Now is a good time to redo your budget and make sure you’re not overspending. If a monthly budget feels overwhelming, start with a weekly one. Revise it regularly until the numbers add up. Don’t forget to give yourself an amount for fun post-lockdown spending.

If you are overwhelmed with debt and cannot make minimum payments, it might be worth talking to a debt advice service such as the StepChange Debt Charity. They can advise you on your rights and how to move forward in the best possible way.

By Diana Bocco

Source: The Motley Fool

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Homeowner arrears ‘low’ as renters absorb pandemic shock

The share of mortgage borrowers falling behind on debt repayments has remained “relatively low” during the pandemic, but the situation is worse for renters, according to the Bank of England ‘s latest research.

Whilst the proportion of mortgage balances in arrears has continued to resist a sharp rise since the start of the pandemic, the central bank’s quarterly update on household debt highlighted a worse outlook for renters.

“The Covid crisis has had a larger impact on renters’ finances than on homeowners’ finances,” it said.

“Renters were more likely to have lost their jobs or been furloughed, relative to households with mortgages or those who own their home outright.

“Survey evidence also suggests that more renters have seen a fall in income, a pattern which persisted over the crisis.”

Such observations have prompted the central bank to warn that “pressure on renters’ finances may result in defaults and losses for lenders”.

It added: “A fall in rental payments may lead buy-to-let borrowers to sell properties quickly, amplifying house price falls in a downturn.”

The National Residential Landlords Association published research earlier this year which suggested 840,000 private renters in England and Wales could have built rent arrears since March 2020.

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Surveying 2,077 private tenants, the membership body found 7 per cent of tenants had built up arrears as a direct result of Covid. Some 18 per cent of those in arrears had rent debts of more than £1,000.

More generally, the research also showed 11 per cent of private renters – between November and December 2020 when this survey was conducted – were unemployed.

Due to the government’s “no ‘one-size fits all’ approach” to rent payments during the pandemic, it concluded that “rent levels agreed in the tenancy agreement remain legally due and tenants should discuss with their landlord if they are in difficulty”.

The Bank of England said in its latest report if “renters cut consumption to keep up with rental payments this could amplify a downturn”.

It continued: “Renters are less likely to have savings compared to mortgage borrowers and spend a significant portion of their income on housing costs.”

This dip in income across the UK’s renting demographic has had a parallel impact on landlords’ income, according to the NRLA.

Out of 1,391 landlords it spoke to at the tailend of last year, 60 per cent said they had lost rental income as a result of the pandemic. And 39 per cent of this majority said those losses were continuing to increase.

With renters and landlords having absorbed the brunt of the pandemic-induced market shock, mortgage borrowers have, in contrast, benefitted from payment deferral schemes.

Since March 2020, the schemes have allowed borrowers to temporarily freeze mortgage and unsecured loan repayments, providing a cushion against any fall in income.

“Though payment deferrals were available to borrowers with either mortgage debt or unsecured debt, they appear to have had more of an impact in supporting those with mortgages,” the Bank of England said.

It cited UK Finance figures, which suggest around one in six UK mortgages were on payment deferrals around their peak in June 2020.

“The widespread use of mortgage deferrals in particular, has helped borrowers to manage temporary changes in their income through the crisis,” the bank concluded.

By Ruby Hinchliffe

Source: FT Adviser

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Increases in mortgage arrears expected this year, says UK Finance

More home-owners are expected to fall into mortgage arrears this year as the economic repercussions of the coronavirus pandemic continue to be felt, according to UK Finance.

The trade association, which represents the banking and finance industry, said mortgage arrears remained close to historically low levels in the first three months of 2021.

From March 2020 to the end of March 2021, lenders were offering payment holidays of up to six months to borrowers whose finances had been affected by the coronavirus pandemic.

Nearly 2.9 million mortgage payment deferrals were granted while the scheme was active.

With the economic impact of Covid-19 continuing to be felt, we anticipate there will be further increases in mortgage arrears during 2021

Eric Leenders, UK Finance

For borrowers who need additional support beyond the six-month payment holidays, lenders are continuing to offer tailored support.

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UK Finance’s latest figures show a small increase of 230 mortgages in arrears compared with the previous quarter, with a total of 77,640 home owner mortgages in arrears of 2.5% or more of the outstanding balance.

Within the total, there were 27,280 mortgages with significant arrears representing 10% or more of the outstanding balance. This was an increase of 620 on the previous quarter.

UK Finance said this figure has slowly increased since early 2020 but from a low base, largely driven by customers who had several missed payments before the pandemic.

Eric Leenders, managing director of personal finance at UK Finance, said: “While there was a slight rise in total arrears in quarter one 2021 compared to the historic low levels seen before the pandemic, the additional support from lenders has helped many mortgage customers stay out of arrears.

“With the economic impact of Covid-19 continuing to be felt, we anticipate there will be further increases in mortgage arrears during 2021.

“Any customer who is concerned about their finances should contact their lender early to discuss the options and tailored support available to them.”

Only 190 home-owner mortgaged properties and 180 buy-to-let mortgaged properties were repossessed in the first quarter of 2021.

Although Financial Conduct Authority (FCA) guidance allowed firms to re-start litigation activity from November 2020, lenders voluntarily committed to pause repossessions in line with a “winter truce” from mid-December 2020 to mid-January 2021, UK Finance said.

It added that repossessions are expected to eventually increase due to the backlog of cases that did not take place in 2020.

These cases will have been in train before the pandemic, it said, adding that repossessions are always a “last resort”.

By Vicky Shaw

Source: Belfast Telegraph

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Nearly 800,000 home-owners are ‘vulnerable to repossession’

Nearly 800,000 households across the UK could be at risk of home repossession if they suffer a loss of income, according to analysis by a think-tank.

The Social Market Foundation said that of the 770,000 it calculates may be at risk of repossession, a quarter (26%) work in retail or manufacturing, sectors badly hit by the pandemic.

SMF research funded by the Building Societies Association (BSA) suggests more than one in 10 owner-occupiers do not have enough savings to cover a single month’s mortgage payment.

A ban on home repossessions has been put in place as part of coronavirus support measures and borrowers have also been able to take mortgage payment holidays.

Opinium polling of 2,000 mortgage-holders commissioned for the SMF found 29% had seen their household savings decrease during the pandemic.

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Close to 800,000 home-owners could be at risk of losing their home during these turbulent economic times

Scott Corfe, Social Market Foundation

Nearly half (46%) of mortgage-holders on incomes up to £20,000 said they have seen their savings decline.

The SMF suggested that a time-limited hardship grant could protect households from building up additional financial burdens.

Research director Scott Corfe said: “Close to 800,000 home-owners could be at risk of losing their home during these turbulent economic times.”

Paul Broadhead, head of mortgages and housing at the BSA, said: “With the growth in wealth and income inequality as a result of the Covid-19 pandemic, it’s now more important than ever to look at all possible options that could help home-owners who are struggling to meet their mortgage payments beyond lender forbearance.

“There isn’t one single solution that will support all those in need. Stakeholders, including Government and lenders, need to work together to ensure that home-owners and families, whether they’re dealing with temporary or longer lasting financial difficulties, have the best chance of overcoming their difficulties and enjoy a home which is financially sustainable.

“I hope that the findings in this independent report will stimulate debate and that a range of flexible and compassionate options can be found to create positive futures for those whose prospects may currently feel pretty bleak.”

The SMF analysed the Wealth and Assets Survey as part of its research.

By Vicky Shaw

Source: Belfast Telegraph

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