Expert discusses possible way to get on top of these debts
More than four in 10, or 43%, of people with adverse credit reported an increase in their debt over the past 12 months, a notable uptick from the 33% recorded in the preceding year.
The latest Pepper Money Specialist Lending Study also found that 30% of individuals with adverse credit are grappling with outstanding debts exceeding £5,000, excluding mortgage and student loans. Additionally, nearly one in 10, or 9%, of the respondents find themselves burdened with debts over £15,000.
A trend identified in the study was the heightened utilisation of Buy Now Pay Later credit among this demographic. Approximately 45% of individuals with adverse credit acknowledge an increase in their usage of this payment method over the past year, with 17% indicating a substantial rise.
“It’s often the case that customers who have a history of adverse credit also have significant balances on unsecured debt,” Ryan Brailsford (pictured), business development director at Pepper Money, said. “One way to get on top of these debts is by raising capital with a remortgage to pay off the separate balances, consolidating them into additional borrowing secured on their property.
“Restructuring finances in this way requires careful consideration. However, in the right circumstances, it can significantly reduce the monthly cost of servicing that debt, which could prove a vital lifeline for households struggling to make ends meet in the current environment.
“When it comes to debt consolidation, many lenders will include a maximum debt to income ratio as part of their affordability calculation, which could limit a customer’s ability to raise enough capital to clear their debts. However, not all lenders take this approach.”
Brailsford pointed out that at Pepper Money, they have no predetermined level of debt.
“Some lenders will also limit the loan-to-value to which they allow debt consolidation, but again not all lenders, and at Pepper Money, we allow debt consolidation up to maximum LTVs,” he explained. “We can also offer your customers an enhanced free legals service, covering the cost of legal work required on remortgage applications, including debt consolidation.”