New phase of cost crisis for poorer families: Foundation
The cost of living crisis has entered a “dangerous new phase” for low-income families, whether they have a mortgage or not, according to the Joseph Rowntree Foundation.
The independent social change organisation said that low income families are paying hundreds of pounds in interest on loans, including those taken out to help them with the rising cost of living. “Even without a mortgage, these households are incredibly exposed to rising interest rates”, the Foundation said.
From analysis it has carried out, it believes that as at May 2023, nearly 6 million low-income families (5.7m) had unsecured debt (personal loans, credit cards, overdraft facilities, payday lenders and licensed doorstep loans), between them amounting to around £14.2 billion or £2,500 on average per family. Interest works out at around £680 per household on average – which would have been just £210 on the same amount of debt 18 months previously.
Many are going without essentials, and 82% experienced food insecurity in April/May. And despite using credit to pay bills, three quarters report being in arrears with at least one household bill or lending commitment, and 44% with three or more bills. More than half of those who reported using credit to pay bills hold a loan with a loan shark, doorstep lender, payday lender or pawn shop, and a third hold three or more such loans.
In a blog, JRF chief economist Alfie Stirling and senior economist Rachelle Earwaker write that while rising mortgage costs tend to dominate the national conversation, the affordability of short-term credit remains a vital factor in preventing an already brutal crisis from getting rapidly worse.
As interest rates continue to rise, and even as inflation falls back, the Foundation warns, “we risk the tragedy of a second wave of crisis as millions of people struggle to smooth out their incomes any further due to increasingly unaffordable credit”.
Mr Stirling commented: “As the pace of price increase on essentials begins to slow down, family finances are now in peril due to the rising cost of money itself. For many, what small respite might be gained from energy and fuel prices stabilising will be lost through rising costs for credit cards, overdrafts and mortgages.
“The 2020s so far has been defined by a continued lurch from one economic crisis to the next. Each demonstrates the UK’s deeper underlying fragilities and the failure across consecutive governments to build up and spread different forms of economic security, including income safety nets, public services, housing and energy generation and efficiency. The next few months could mark a turning point in how the decade is remembered, but it requires a new course to end continuing insecurity.”