45% of mortgage holders finding it difficult to pay bills, charity warns

Signs of financial difficulty include making just the minimum repayments on debts (Anthony Devlin/PA)
Signs of financial difficulty include making just the minimum repayments on debts (Anthony Devlin/PA) Signs of financial difficulty include making just the minimum repayments on debts (Anthony Devlin/PA)

Nearly half of mortgage holders have found it difficult to keep up with bills and credit commitments in the last few months, according to a debt help charity.

Some 45% of borrowers have found it difficult, the YouGov survey, carried out for the StepChange debt charity, found.

StepChange said that two-fifths (40%) of mortgage holders are showing at least one sign of financial difficulty while one in 10 (10%) are estimated to be in problem debt.

Signs of financial difficulty include making just the minimum repayments on debts, using an overdraft in each of the past three months, using credit, loans or an overdraft to make it through to payday, falling behind on essential household bills, using credit to keep up with existing credit commitments, being hit by late payment or default charges, missing a regular monthly payment on at least one debt, and using credit to pay essential household bills.

Problem debt means being affected by three or more of these options, according to the definition used by StepChange.

The figures were released as the Bank of England is expected to raise the base rate on Thursday, for the 13th time in a row.

The base rate sits at 4.5% and there have been predictions that it could increase by 0.25 percentage points, or even 0.5 percentage points, as inflation remains stubbornly high.

According to figures from trade association UK Finance, a 0.25 percentage point increase in the base rate could add £23.71 to the average monthly tracker mortgage payment, while a 0.5 point increase could add £47.43.

There are 639,000 residential tracker mortgages outstanding.

For someone on a standard variable rate (SVR) mortgage, a 0.25 percentage point increase could add £15.14 to average monthly repayments while a 0.5 percentage point increase could add £30.28, based on the mortgages currently outstanding. SVRs are set by individual lenders although they often follow base rate movements.

Some 773,000 residential SVR mortgages are outstanding.

The bulk of homeowners are on fixed-rate products, although around 2.4 million deals are due to end between now and the end of next year.

Chancellor Jeremy Hunt is due to meet banks on Friday to ask what help they can give to borrowers struggling with their mortgage.

Lenders have said they stand ready to help. Banks may offer various options to struggling borrowers, depending on individual circumstances, such as extending the length of the mortgage, offering a temporary payment holiday or temporarily switching to interest-only.

Vikki Brownridge, CEO at StepChange, said: “In a short space of time StepChange’s mortgage advice team has seen a sharp rise in the cost of borrowing among clients, who are facing on average an approximate £300 jump in monthly payments for a typical-sized mortgage now compared to before September 2022.

“While our figures show that increased pressure is not yet bringing more homeowners to debt advice, the risk is there as people cut back on spending or turn to credit to keep up with essentials and the wider cost of living.”

She added: “The FCA (Financial Conduct Authority) has renewed its guidance to lenders to treat borrowers fairly, and we would urge all firms to proactively engage with and support customers showing signs of financial difficulty early, as well as providing effective signposting to free debt advice.

“If you’re worried about meeting your mortgage payments, it’s never too soon to get support – speak to your lender about your options or seek free and impartial debt advice from a charity like StepChange.

“We have a dedicated free mortgage advice service, which is open to anyone, whether they are currently in problem debt or not.”

More than 2,100 people were surveyed by YouGov for StepChange across the UK in May 2023.

Alfie Stirling, chief economist at the Joseph Rowntree Foundation, said: “There is a strong case for the Bank to take a pause for breath, and better gauge the effects already in the system before they become irreversible.”

He pressed for “rebuilding the UK’s income safety net so that it reflects the actual cost of essentials, and investing in ways to reduce the UK’s future exposure to price increases across the economic system, including through stronger public services, housing market reform and greater energy efficiency and security”.