Around seven million people are turning to credit to try to keep a roof over their heads, research published today by housing charity Shelter reveals.
Frighteningly, almost one in seven of those – just under a million people – have resorted to unsuitable payday loans to cover rent or mortgage payments in the past year.
As The Independent warned last month, payday lenders are cashing in on the millions struggling with their finances who are unable to borrow from mainstream lenders such as banks.
The legal loan sharks charge extortionate interest rates of up to 5,000 per cent and many roll loans over, adding interest onto interest, forcing people into a disastrous debt spiral.
A report from insolvency trade body R3 in December predicted payday loan companies will see a surge in demand in the coming months.
Meanwhile the Office of Fair Trading plans to review the industry to ensure businesses are complying with responsible lending rules.
But Shelter’s survey reveals that the scale of the problem is even worse than previously thought, with millions now at risk.
Campbell Robb, chief executive of Shelter, said: “These shocking findings show the extent to which millions of households across the country are desperately struggling to keep their home.”
Many have turned to overdrafts and credit cards which, at least, can offer some time to repay. But almost a million have resorted to payday loans aimed at people who need short-term cash for a few days.
As such they are expensive. Anyone borrowing £100 could be charged £30, for instance.
The payday loan firms point out that their deals are not only convenient but could be cheaper than into the red at a bank, once you’ve taken account of penalty charges and daily interest.
But anyone taking out a loan through one of the firms will quickly discover how easy it is to do so. And the temptation is then there to borrow again, which can quickly lead to interest mounting up.
“Turning to short-term payday loans to help pay for the cost of housing is totally unsustainable,” said Mr Robb. “It can quickly lead to debts snowballing out of control and can lead to eviction or repossession and ultimately homelessness.
“Every two minutes someone in Britain faces the nightmare of losing their home. We urge every single one of these people now relying on credit to help pay their rent or mortgage to urgently seek advice.”