Homelessness charity Shelter have revealed that almost one million people have taken out a payday loan with a 4,000% interest rate, during the last year in order to pay their rent of mortgage.
Shelter also found that a further six million rely on other types of credit, including unauthorised overdrafts, other loans, or credit cards, to help pay their housing costs.
YouGov carried out a survey for Shelter last month, where 4,014 people were asked if they had used these forms of credit to help with rent or mortgage payments during the last 12 months. One in seven respondents replied yes. Shelter described the findings as revealing “a spiral of debt that people are falling into in order to keep a roof over their head”1. They urged struggling borrowers to seek advice urgently.
Many Resort to Payday Loans to Pay Mortgages or Rent
Shelter’s Chief Executive, Campbell Robb observed the results: “These shocking findings show the extent to which millions of households across the country are desperately struggling to keep their home. Turning to short-term payday loans to help pay for the cost of housing is totally unsustainable.”2
“It can quickly lead to debts snowballing out of control and can lead to eviction or repossession and ultimate homelessness,” explains Robb. “Every two minutes someone in Britain faces the nightmare of losing their home.”1
In addition, Martin Lewis, of moneysavingexpert.com, has explained: “The UK is the crock of gold at the end of the rainbow for the world’s payday lenders. They’ve been regulated out of other countries and jump for joy at our lax supervision.
“That’s why these 4,000% APR lenders are exploding across British high streets. Yet these astronomical APRs aren’t the real danger; that comes from the rollover. This is where people can’t repay at the end of the month and compound interest kicks in. Many struggling with core rent or mortgage commitments will struggle to repay payday loans on time too.”2
Housing minister Grant Shapps said: “The sheer scale of the global slowdown has left many hard working families struggling to make ends meet. So I would urge anyone who is getting into difficulty to seek help in getting their finances back on track.
“Assistance can be sought by searching online for the Government’s mortgage help website or by visiting organisations who can provide free, independent guidance such as Citizens Advice. The quicker households act to get help, the more options they will have available to them.”1
It is hoped that less and less people will turn to these methods of payment, as Lewis explains: “While it is an obvious temptation to grasp these loans as a lifeline, in the long run it may hurt more than help.”1