Debt and Homelessness

Posted: 14th Jul 2016

by Rory McGimpsey

When one thinks of homelessness, the sad image that comes to mind is someone sleeping rough in the street. However, the picture is often much more complicated than that. With debt levels on the rise, many individuals who once were safe from the threat of losing their home have become vulnerable. While the threat of repossession was always an intrinsic feature of secured lending, historically those with stable incomes and steady employment were protected from such repercussions, provided they maintained repayments on their mortgage.

With consumer debt increasing in the post-2008 financial climate, the risk of families losing their home has increased exponentially. Obviously mortgage and rent payments have always been an essential priority for debtors, but a problem arises when a raft of other consumer debt creates competing priorities. Unsecured creditors will typically target debtors in arrears with letters and phone calls. The effect of this bombardment can sometimes be: “He/She who shouts the loudest, gets paid first.” One of the consequences is that a confused debtor becomes muddled about which debts are the real priorities. While non-payment of any debt can have consequences, the level of sanction usually defines the extent of a debt’s priority.

That’s why it’s imperative for anyone worried about debt to seek help as soon as possible. The prioritisation of mortgage and rent payments may seem obvious, but clients often benefit from advice on which debts should be settled first. For example, Citizens Advice have identified a worrying trend that many debtors often prioritise non-priority consumer debts over mortgage and rent repayments. In a recent study, the charity estimated that 28% of clients prioritise consumer credit debts over household bills. CAB also revealed that 15% of respondents with debt worries stop paying mortgage or rent payments before they stop paying their consumer debts.

We can see, therefore, why hundreds of people are made homeless every month due to mortgage and rent arrears. The problem is compounded by record numbers of debtors with homes in negative equity. For example, in Northern Ireland alone, house prices were still 50% below the 2007 peak at December 2015.

It’s estimated that around 5,000 households experience homelessness each year across the UK, and non-payment of priority debts is a significant factor in that startling statistic. We already know that the rise of consumer debt has changed the way in which individuals become insolvent. The rise of payday loans in particular has caused severe indebtedness for many families. Therefore, it’s more important than ever that debtors distinguish the priority debts from non-priority obligations.

Money advisors and debt charities can play an important part in helping clients manage their finances effectively, advising the best way to deal with all their creditors.

Good advice is an essential component of debt resolution, but it’s vital that clients understand the potential consequences of defaulting on priority debts. CAB Chief Executive Gillian Guy says:

“From getting the power cut off to bailiffs knocking at your door, to losing your home or even prison – failing to pay household bills can put people in vulnerable situations.

“Huge numbers of people are unsure of what debts they should prioritise when they get into difficulties which underlines how important it is for people to be able to access free, independent help to manage their finances.

“Similarly being offered money advice at key moments in life could also help people make the most of their money, avoid debt and plan for the future.”

A great article by Money Strategy takes a look at how confusion around your priority and non-priority debts can lead to even further financial difficulty.

There’s an old American saying that we’re all only one pay cheque away from homelessness. With good debt advice, there’s absolutely no reason it should ever come to that. Now more than ever, it’s important that debtors don’t delay in getting the peace of mind they deserve. Help is only a phone call away!




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