A think-tank report examined household debt in the United Kingdom, and considered the possible implications of future interest rate rises. It said that there was still a 'debt hangover' that affected households, and exposure to risk from interest rate rises was relatively concentrated among low to middle income households, with three quarters of mortgagors in the bottom 10 per cent of the income distribution found to be 'highly geared' (with high ratios of debt to income), compared with one-in-eight within the top decile. Although a proportion of the highly geared households may be able to refinance their loans to shield themselves from interest rate rises, the report estimated that around one third of borrowers may find their options restricted by the new tighter restrictions on lending. The report made a range of recommendations for pre-emptive responses.
Source: Katie Blacklock and Matthew Whittaker, Hangover Cure: Dealing with the household debt overhang as interest rates rise, Resolution Foundation
A think-tank report discussed the extent of problem debt in the United Kingdom and set out proposals for a system of affordable financial services providers (including the expansion of credit unions and community finance organizations) to encourage debt reduction, improve understanding of financial products, and encourage saving.
Source: Restoring the Balance: Tackling problem debt, Centre for Social Justice
A paper presented findings on the impact of the recession, cost of living increases, and changes to the social security system on people's financial situation, their family life, and their physical and mental health in Northern Ireland, drawn from the Communities in Action (CiA) Programme, a community-led research project with eight working class communities across the country. Key findings included: that people were using debt to pay for basic needs, trapping them in a cycle of debt; that few people were able to save; that money worries and fears over changes to social security provision were affecting people's physical and mental health, which placed pressure on family life and on relationships; and that there was a need for more locally based emotional and practical support for the people affected.
Source: Gabi Kent, Hard Times 2: Feeling the strain, Community Foundation for Northern Ireland
A report examined the impact of price inflation and low wage growth on household debt problems, and considered the specific impact on low-to-middle income households. The report examined housing costs, council tax, energy bills, water bills, telephone bills, catalogue debts, and the cost of borrowing. It said that, since 2007, there had been a 140 per cent increase in calls to a telephone advice helpline about household debt. The report concluded that a new model of debt problems had emerged, and that problem debt need no longer have a specific 'cause', but could be the result of the slow erosion of a household budget where relatively small levels of total debt could trigger severe financial difficulties due to a lack of budget flexibility. The report raised concerns about the ongoing impact of welfare reforms and made recommendations for creditors, the government, and the advice sector.
Source: Changing Household Budgets: Supporting the UK's economic recovery, Money Advice Trust
A report examined the evidence on the links between debt, credit, and poverty. It said that a lack of longitudinal quantitative data on debt among low-income households meant that it was not possible to ascertain definitively the extent of, or the direction of, a causal relationship between poverty and problem debt. The report concluded that the available evidence highlighted that vulnerability to drops in income and to peaks in expenditure put low-income households at greater risk of problem debt. However, it said that there was a lack of robust evidence about the effectiveness and cost effectiveness of interventions that made it difficult to set priorities for an anti-poverty strategy. The report made recommendations, based on the available evidence.
Source: Yvette Hartfree and Sharon Collard, Poverty, Debt And Credit: An expert-led review, Personal Finance Research Centre (University of Bristol)
A report examined the impact of indebtedness on deprived communities, drawing on data from the United Kingdom, but focusing on Wales wherever data were available. It said that: the best estimate of the extent of overindebtedness in Wales was 16 per cent of the population; indebtedness was strongly associated with socio-economic disadvantage, with particularly high levels of indebtedness found in the central and eastern valleys of Rhondda Cynon Taf, Merthyr Tydfil, Caerphilly, and Blaenau Gwent, while the north Wales coast and some rural areas also indicated higher levels of problems on at least one measure; and indebtedness was strongly associated with low-income and financial exclusion, because of increased risk factors such as low levels of savings and low disposable incomes, although indebtedness was usually the result of a combination of circumstances, events, and behaviours.
Source: Victoria Winckler, Overview of Indebtedness, Low Income and Financial Exclusion, Public Policy Institute for Wales
A private member's Bill was published that was designed to place restrictions on the advertising of high-cost credit agreements.
Source: High-cost Credit Agreements (Advertising Restrictions) Bill, Lord Mitchell, TSO
A report provided findings from a study into the legal process of housing possession in England and Wales, with particular focus on the ability of court users to supply information to the court, and to obtain advice and representation on the day of the possession hearing. It said that there was a lack of 'joined up thinking' within the legal process, such that potentially relevant and important information about the defendant's circumstances might not be known to the judge. The study had found that the rates of participation in the proceedings by defendants were low, but their involvement was likely to lead to a more beneficial outcome. Legal advice and representation was important to outcomes, but the report said that few defendants received legal advice prior to the hearing, and legal aid and voluntary advice service cuts would make this more difficult. The report called for a range of measures to improve outcomes, including for better flows of information between defendants and courts, funding for housing possession schemes to provide legal advice in courts, for better data on defendant attendance and representation levels, and for a central database of court-based legal advice.
Source: Susan Bright and Lisa Whitehouse, Information, Advice and Representation in Housing Possession Cases, University of Oxford/University of Hull
A report examined the scale and impact of problem debt among families with children. It said that almost 1.4 million United Kingdom families with dependent children were currently in problem debt, and an additional 2.9 million families with dependent children had struggled to pay bills and credit commitments over the previous 12 months. 10 per cent of families said they had taken out credit to pay for food for their children, 18 per cent for clothing, and 6 per cent for heating. Problem debt was found to have an impact on family relationships, as well as on children, who reported issues such as feeling worried about the family finances, difficulties at school, and exclusion from social activities. The report made a range of recommendations to reduce the harm to children, reduce the impact on families, and provide earlier intervention to prevent problem debt.
Source: The Debt Trap: Exposing the impact of problem debt on children, Children's Society/StepChange
An article said that a student's gender, ethnicity, and year of study played an important role in determining their expected debt. Students in receipt of financial support from their parents, and those with part-time jobs, anticipated a lower level of debt. The higher a student discounted future income, the greater their expected debt; and the more risk-averse a student, the lower the expected debt.
Source: Ray Bachan, 'Students' expectations of debt in UK higher education', Studies in Higher Education, Volume 39 Issue 5
A think-tank report examined the debt exposure of households with mortgages in the United Kingdom, drawing on data from the Family Resources Survey. It said that around 2.3 million households might face affordability problems, and around 770,000 households were both at risk of being 'mortgage prisoners' due to a limited ability to switch to better mortgage deals (owing to low equity levels, being self-employed, or having interest-only mortgages), and at risk of becoming 'highly geared' (with monthly mortgage repayments of at least one third of their disposable income) by 2018. The report noted the geographical variations in affordability. The think-tank would publish a further report, later in 2014, regarding potential policy responses.
Source: Matthew Whittaker, Mortgaged Future: Modelling household debt affordability and access to refinancing as interest rates rise, Resolution Foundation
A report examined the attitudes towards, and use of, credit for people on the lowest incomes. It identified three borrower groups: survival borrowers (using less mainstream credit to meet day to day expenses); lifestyle borrowers (using less mainstream credit for one off expenses); and reluctant borrowers (those struggling with more mainstream credit that was acquired in better times, and now reluctant to borrow further). It said that many borrowers prioritized flexibility, control, and familiarity over absolute cost, but choice was also mediated by a lack of perceived or actual access to alternative forms of credit. It said that unmanageable debt triggered financial detriment and affected health and well-being and, although debt advice could be effective, many of the people interviewed had low awareness of the help and support available to them.
Source: Consumer Credit and Consumers in Vulnerable Circumstances, Financial Conduct Authority
A report examined the financial resilience of households in Britain. It said that 15 million people were falling behind on bills, almost 6 million were using credit to pay for essential costs, and 13 million had insufficient savings to cover expenses for a month if their income dropped by one-quarter. The report called for a range of responses, including a national strategy to address issues of personal debt, a better welfare safety net, and a framework of free debt advice services.
Source: Robbie de Santos, Life on the Edge: Towards more resilient family finances, StepChange Debt Charity
A think-tank report considered alternatives to high-cost, short-term loans (or payday lending) for people without access to mainstream credit. The report recommended the establishment of a new national institution, funded initially by a one-off levy on the consumer credit market, to mobilize and capitalize a diverse range of new local, not-for-profit lenders and to incentivize saving among low-income families. The report also made recommendations for good practice for payday lenders.
Source: Mathew Lawrence and Graeme Cooke, Jumping the Shark: Building institutions to spread access to affordable credit, Institute for Public Policy Research
A report examined personal debt, considering the types of impacts, and how they were distributed across different types of debt and borrower. Drawing on research in three cities in England, it proposed a 'harm index', and made recommendations for change, including: that the official measure of debt should include arrears on housing and utilities, as well as levels of consumer credit; a legal right for borrowers to negotiate directly with their creditors; a 'three strikes' approach to arrears (reminder letter, obligation to discuss repayment options with creditor, then possible debt recovery proceedings); funding for debt advice (from a Financial Services Authority levy), targeted more directly at early intervention and outreach; and a more personalized approach to support provision.
Source: Jo Salter, The Borrowers: Looking beyond the financial impact of debt..., Demos
A report examined the financial implications of the 2012 student finance reforms for graduates, in particular the differences between graduating under the new 2012-13 system and the old 2011-12 system. It said that, under the new system, students would graduate with much higher debts, averaging more than £44,000. This would result in higher repayment levels for most graduates, but the lowest earners would pay back less. The report said that, under the old system, almost half would have cleared their student loan debt by the age of 40 (compared with about 5 per cent under the new system), and that, under the new system, almost three-quarters would not earn enough to pay back their loans in full.
Source: Claire Crawford and Wenchao Jin, Payback Time? Student Debt and Loan Repayments: What will the 2012 reforms mean for graduates?, Institute for Fiscal Studies