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Households are finding it increasingly hard to repay their debts as rising food and energy prices squeeze disposable incomes, research for the Bank of England showed today.
The number of households that said they were struggling to pay their rent or a mortgage increased to 13% from 9% last year, while 10% of those questioned said they found it a "constant struggle" to keep up with their bills. A further 3% said they had fallen behind with some payments.
"The typical household reported that the income it had available after meeting household bills had fallen over the past year, and that it had saved less than it had expected," the survey said. "More households were finding their debts to be a burden than in similar surveys carried out since the mid-1990s."
The main reason households had experienced difficulty repaying loans was that bills had been higher than expected, the survey showed. This had also restricted disposable incomes for discretionary spending.
More than half of households reported a fall in monthly disposable incomes in the year to September, with around 30% saying they had around £100 a month less to spend.
Almost half of those questioned said they had spent more than they expected over the year, while just 8% said they had spent less than expected.
The survey of 2,500 households, which was carried out in mid-September at the height of the financial crisis, revealed incomes were being squeezed by rising prices and a lack of available credit.
After two previous surveys showed that respondents found it easier to get credit, the latest results showed people were struggling to raise loans, and were cutting spending as a result. The number of households saying they had put off spending because they were concerned they would be unable to get further credit was up from 12% last year to 16% this year.
The Bank said the reduction in housing equity over the past year may also have restricted the spending of people with mortgages. Just 6% of borrowers said they had taken out an additional secured loan this year compared with 10% last year and 14% in 2006.
Although 80% of people with mortgages said they believed their home had fallen in value over the past year, and a third thought the fall had been greater than 10%, the Bank said just 4% of mortgages were estimated to be in negative equity at the end of September.
It said the collective debt of UK households stood at £1.6tn in the second quarter of the year, around 75% of which was secured on dwellings and owed by the 40% of households who held mortgages.
Despite the rise in the number of people struggling with their debts, the Bank said the figures remained fairly small. The number of households struggling with mortgages is well below the peak level recorded in the early 1990s during the last housing market crash, and the number falling behind on other repayments was "relatively small".
However, the economy has continued to struggle since the survey was carried out, and rising job losses and the continued fall in house prices and consumer spending are likely to offset some of the savings made by households as a result of falling interest rates and the recent cut in VAT.
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