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‘HOUSING PINCHED” SPEND HALF THEIR INCOME ON HOUSING COSTS

Published on:August 15, 2014Author:The Debt Advisor

It is becoming harder to live comfortably on a modest income, a new report has found.

A report by the Resolution Foundation has found that 1.6 million households in the UK are ‘housing pinched’ and spend half their disposable income on housing costs.

7% of this figure are retired people and 30% are households in which nobody works, leaving nearly 1 million working households who spend more than half their disposable income on housing costs.

Only a small percentage of those spending more than 50% of their income on mortgages or rent are in a higher income bracket. The vast majority – 830,000 – are in the bottom half meaning 84% of the housing pinched have incomes below the national median. These people have an average of just £60 per week left over to spend on all other essentials such as food and bills.

The report found that the housing pinched are likely to be young, live alone, live in one-bedroom properties, have recently moved and live in London.

Even though the economy is on the mend, the proportion of people paying half of their disposable income towards housing costs has, according to The Resolution Foundation, risen substantially since the early 2000s.

Bev Budsworth, MD of The Debt Advisor addsed: “If you consider that the average take home pay for a single person living on their own is around £1,440 per month. Using an industry standard expenditure guide, that person is likely to spend around 43% of their net wage on basic household expenses including food, utilities, transport, etc. leaving just £820 for their housing costs. However, based on the average mortgage of £130,000, re-payments on a capital and repayment basis are likely to be around £844. Clearly there’s not enough money left which is even more worrying when you consider that the expenditure figure does not include any spending on holidays, special occasions or even going out once in a while.

“Unfortunately, an interest-only mortgage isn’t the answer either and those on them are feeling increasingly trapped as lending criteria is tightened up and credit disappears leaving them with no alternative repayment plan.

“Lenders have responded by trying to ‘wean’ borrowers off interest-only and on to repayment mortgages which could be disastrous for many borrowers as this is the reason why they are on an interest-only scheme in the first place – affordability.

“Lenders need to get creative and not simply try to force these borrowers onto a repayment mortgage which could ultimately see an increase in mortgage arrears or worse, repossession.

“Borrowers need to be given the time to consider their options or to make alternative arrangements. They need to think of less traditional options like extending the term or accepting overpayments, rather than forcing people onto a scheme they can ill afford – a recipe for disaster.”

She added: “If The Resolution Foundation report is correct, this is a situation that is relevant to many hundreds of thousands of people.”

With so many people being stretched financially, debts will start building up as soon as people rely on credit to fund the cost of living. If you’re struggling with debts, you should be aware that there are options available to you.

The Debt Advisor can advise on all types of debt solutions such as Debt Management Plans (DMP)Individual Voluntary Arrangements (IVA) and Bankruptcy.

The Debt Advisor Ltd is regulated by The Financial Conduct Authority and the Debt Resolution Forum and we adhere to their codes and standards.

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