Households Using Short Term Loans to Cover Mortgage Repayments

Fri, 04 Jul 2008

New research has shown that more than four million households have taken out personal loans or credit cards to cover rent or mortgage repayments over the last year. With mortgage repayments accounting for 78 per cent more of homeowners’ expenditure than they did in 2003, homeowners are beginning to feel the squeeze. In addition, energy bills have doubled, petrol has increased significantly whilst council tax is also up by 25 per cent, making life difficult for homeowners.

However, experts have warned that short term loans with high interest rates are not a good solution to financing long term debt, as it is more likely to induce borrowers into a dangerous cycle. With £30 billion worth of mortgage deals expiring this month, it is feared that mortgage holders will turn to such short term, high interest loans to keep their heads above water in the short term, despite the fact it is significantly more costly in the long run. Homeowners are also being warned that if they lie about the reason for wanting a personal loan, they could be charged with fraud .

The findings are consistent with this week’s revelations by the Bank of England that credit card borrowing increased more in May than it had done for two and a half years.
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