Rising mortgage payments and rent increases, as well as the rising cost of food and energy bills, could also force households that have never been in debt to borrow to make ends meet.
“It is important to be aware that the use of credit especially to cover essential expenses carries risks, especially for someone with less financial resilience who may find that the only option available to them is a high-cost credit,” said Sue Anderson, spokesperson for charity StepChange. The Guardian reported.
The Bank of England on Thursday raised interest rates from 0.75% to 3% – the biggest rise since 1989 – meaning thousands of households will see their mortgage payments rise. Banks and other lenders will likely take the opportunity to increase the cost of other loans and credit cards.
Jane Tully, director of external affairs and partnerships at the Money Advice Trust, agreed with Anderson.
“With the incomes of millions of people already unable to keep up with rising prices, more and more people are having to turn to credit to cover the essentials.”
One in five new StepChange clients who seek help now cite the cost of living as the main cause of their debt problems, the charity said.
It has overtaken unexpected loss of income due to poor health and layoff as the main factor for people seeking debt relief, as the rising cost of living means they struggle to make ends meet. ends.
The advisory body said so far it had not seen an increase in customer debt but said it was a risk as the cost of living crisis intensifies in the winter course.
Victor Trokoudes, managing director of savings app Plum, said: “Most households have yet to see the impact of rising interest rates on their mortgages as they remain locked in fixed rate agreements.
“As more and more households come to remortgage, it will add even more pressure on people’s budgets, which may cause desperate households to turn to additional unsecured borrowing. As demand for credit is expected to increase , it might be harder for many people to get approved for traditional products like loans and credit cards,” he said.
“Since the global financial crisis, banks have put in place strong affordability criteria,” said Peter Hewlett, head of fintech at PwC. “This means that those who historically relied on credit for emergencies may find it more difficult to get approved for a loan or a credit card.
“We expect using other payment options, such as ‘buy now, pay later’ or payments spread over months, to be more cumbersome for this reason as people try to set aside funds essentially.”