Unsecured debt increasing for adverse credit borrowers – study

They are concerned that this will jeopardize their chances of securing a mortgage

Unsecured debt increasing for adverse credit borrowers – study

One in three people with adverse credit reported an increase in their unsecured debt in the last 12 months, according to the latest Pepper Money Specialist Lending Study.

The specialist mortgage lender commissioned market research firm YouGov to conduct the study, which found that among the more than 6,000 adults surveyed, 33% of people with adverse credit said the level of their unsecured debt had gone up in the past year, while 40% said they had increased the debt they have on buy now pay later schemes.

The study also revealed that nearly one in five people (19%) with adverse credit have outstanding debts, aside from the mortgage and student loans, of more than £10,000.

About a third (31%) of people with adverse credit are concerned that their level of outstanding debt will make it harder for them to get a mortgage.

“The cost-of-living crisis is driving an increase in levels of unsecured debt at the same time as rising interest rates are making it more expensive to service this debt,” Tom Whitney (pictured), head of sales for second charge mortgages at Pepper Money, said. “The monthly commitment of servicing short-term debts such as credit cards, store cards, and overdrafts, can stifle the ability of many families to meet their monthly outgoings, and many will be looking to streamline their finances.

“In the right circumstances, consolidating expensive short-term credit on to a longer-term loan at a lower rate, could help to put families in greater control and to normalise their finances, as they pay down that credit over the longer term.”

Whitney added that managing short-term debt may be increasingly challenging for customers feeling the pinch of inflation of food bills and increasing energy prices.

“It is important our broker partners undertake a comprehensive review of their customers’ circumstances,” he stressed. “It may be that waiting for a remortgage may not be right for everyone, but a second charge mortgage used to consolidate unsecured debts could help customers to reduce monthly outgoings and give them the breathing space they need to manage their monthly finances and navigate this difficult period.”