by Mark Johnston
A large number of UK borrowers are starting to pay their mortgage using their credit card. Recent research has highlighted the plight of thousands of struggling home owners who are turning to their credit cards to fund their monthly home loan repayments.
The report showed that around 2.6 million borrowers, which is six percent of the total number of home owners have used their credit card to make mortgage repayments. Many of the home owners have been forced to use short term borrowing on their credit card as a result of the tough economic environment where the coalition government has made massive cuts in budgets that have impacted many UK home owners.
Back in November the same research was carried out, around 4% of borrower admitted funding mortgage payments on their credit cards. This has shown a stark increase in this method of trying to plug the gap.
Funding mortgage payments in their way is probably the worst course of action to take and can be very costly. Interest rates on credit cards are very high and are design for very short term borrowing. Withdrawing cash using a credit card can be even more expensive especially when taking large amounts out like the cost of a monthly mortgage repayment.
Campbell Robb, chief executive of the homeless charity Shelter, said: “This research brings into sharp focus how keeping a roof over their head has become a daily struggle for millions across the country. Already someone faces the nightmare of losing their home every two minutes, and we would urge every single one of these people now relying on credit to keep their home to seek advice urgently.”
The best course of action is always to get help quickly if in financial trouble. Most lenders are a lot better prepared to handle debt than they used to be. Banks and building societies have realised that no one benefits from repossessions and only do this as a last resort.
Although the sustained low interest rates have helped struggling families through tough time, experts are now warning that households are relying on cheap repayments and would struggle if the Bank of England base rate rises.
A top UK economist, Danny Gabay has suggested that the UK cannot recover until both the government and financial services industry deal with borrowers who have taken out loans well beyond their means.
Mr Gabay was concerned that there is a growing number of households that rely on the low base rate to make ends meet. He pointed out that even a slight increase in the base rate will push thousands of families into debt sparking potential home repossessions.
Its hard to say how many people this could effect but recent data from the Council of Mortgages Lenders suggests that up to three million people in the United Kingdom could be effected even if rates rise two percent from 0.5% to 2.5%.
The figures show that there are already well over 1 million home owners who are struggling to make payments even with the Bank of England base rate at the record low of 0.5%.
Mr Gabay said: “It is an extraordinary position to be in. Fixing government finances is important but is only part of the problem. The other, larger part, is fixing household finances, where in fact the crisis began. It is very politically convenient to believe that the crisis was caused by greedy bankers but nobody made people take out mortgages of five times their income. Lots and lots of people borrowed too much.”
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