Press Release

LOW INCOME MORTGAGORS “MOST AT RISK”

1 January 2007

Homeowners on low incomes1 are facing increasing pressure and are most at risk in meeting their unsecured debts, according to the latest dashboard from leading debt charity, Consumer Credit Counselling Service (CCCS).
The dashboard shows that both the base rate and unemployment indices are higher than at any point since 2001. This accounts for some of the pressures that have led to recent changes in the demographics of people seeking help from CCCS.
But, while growth in outstanding unsecured debt across the nation as a whole stagnated in 2006 - rising less than one percent, the average outstanding unsecured debt of low income homeowners counselled by CCCS in the same period rose by over 50 percent. In 2005 the debt averaged £23,000; in 2006 it averaged £36,000.

Table 1- average unsecured debts of homeowning clients counselled by CCCS

	2004	2005	2006
Above low income threshold	£20,511	£22,998	£35,719
Above low income threshold	£36,862	£40,338	£40,194

According to CCCS statistics low income clients now account for a disproportionate percentage of those seeking debt advice. Figures from the Department for Work and Pensions show that between 2004 and 2006, 18 percent of the population was living in a household with income below the low-income threshold2. In 2004 and 2005 the proportion of CCCS clients counselled who were below the threshold closely
1 For the purposes of this report, “low income” is defined by the DWP criteria of an income that is below the threshold of 60 percent of the national median income. This threshold is £201 per week for 2004, £210 per week for 2005 and £217 per week for 2006. See ‘Households Below Average Income’ (HBAI) publications http://www.dwp.gov.uk/asd/hbai.asp#hbai
2 HBAI Statistics First Release, March 27, 2007 (ONS)
matched this. However in 2006 the proportion of those counselled who were on low incomes doubled to 35 percent.

Table 2 – proportions of CCCS and UK populations with income beneath the low-income threshold

	2004	2005	2006
CCCS clients counselled	19%	18%	35%
UK population	18%	17%	18%

This rise was almost entirely the result of more low-income people with mortgages seeking help with their unsecured debts. In 2005, only one in seven people on low incomes counselled by CCCS had mortgages; in 2006 it was almost one in two.
Many unsecured lenders have been generous to homeowners in recent years, and a deluge of day-time television advertising has encouraged people to handle debt problems by consolidating their unsecured credit into secured loans. As available equity to back such loans diminishes, households will find that their options are considerably impacted. According to CCCS, taking out additional credit to deal with debt problems is rarely an effective solution.
CCCS Chairman Malcolm Hurlston said, “In our last Dashboard we warned that homeowners were being put on the rack. This latest research shows that the effects are already being felt by the most vulnerable. Low income-homeowners are at risk of suffering the fate of the miner’s canary – becoming the first to succumb when the situation turns sour.
“I am writing to the Council of Mortgage Lenders to see how we can deepen our collaboration.
“Although mortgage payments and other priority debts should always be prioritised when finances are tight, many people on low incomes are leaving it longer to seek independent help or advice about their unsecured debts. By the time they contact us their situation is on the brink.”

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