Middle-classes hit by debt crisis

Couple with bills

Seemingly affluent households are increasingly seeking debt advice as the credit crunch hits middle-England, debt organisations have reported.

Transact, a network of over a thousand debt and financial inclusion organisations, says middle-class households who took advantage of the glut of cheap credit over the past few years are now feeling the pain of price hikes.

People who took out cheap mortgage deals two years ago are suffering from payment shock while those looking for personal loans and credit cards are being stung by higher interest rates and charges.

Transact says it saw an 85% increase in people seeking financial help in 2007, with a massive 234% increase in the affluent area of Tunbridge Wells.

It reports that one of its members, Community Money Advice in the traditionally middle-class town of Haywards Heath, has had to close its doors to new cases because of a dramatic increase in demand.

“We are seeing a new type of client. Teachers, police and banking and service sector workers, many of them homeowners, are struggling with mortgages, secured loans, and credit card debts,” says Heather Keats, director of Community Money Advice.

She adds: “They were already financially stretched but have been pushed over the edge by dearer credit and big increases in food and utility costs.”

Another Transact member, Meridian Money Advice in Greenwich – where the average property price was £279,565 in March 2008 – claims many people seeking advice got into trouble because they borrowed “cheap money” simply because they could.

Chris Tapp, from debt charity Credit Action, says: “The whole face of the debt problem is getting uglier. We are dealing with many more mortgage problems and repossession hearings which are more complicated and take far longer to deal with than other credit issues.”

There are now real concerns that charities and other debt organisations may not be able to cope with the increase in demand.

“The need for free debt advice has always outstripped supply, but it’s hard to see how services that are already seriously overstretched will cope with this extra demand,” says Transact’s Faith Reynolds.

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the problem is people borrow money and spend it without thinking. My niece is always putting things on her credit card even when she has money in her account and she only makes the minimum repayments... crazy!

Hopefully this crisis is really going to help people understand the implications of borrowing and maybe the silver lining of it all is that it will really encourage people to think twice before putting something on their credit card. I was always taught that if you wanted to buy something you couldn't afford you'd save for it - that it ethos seems to have all but disappeared.