Housebuyers using payday loans to pay mortgages

| January 4, 2012 | 0 Comments
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In the last year around seven million UK house buyers have been forced to use payday loans or unauthorised overdrafts to meet their mortgage repayments, according to housing charity Shelter.

With both of these sources of finance potentially carrying extremely high interest rates, this represents one in seven Britons who could be at risk of falling into a “spiral of debt” and losing their homes, Shelter warned.

Payday lenders may charge interest as high as 4,000% APR on short-term loans.

Around 2% of people have turned to payday loans to fund their rent or mortgage in the last year, Shelter said.

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.

“Turning to short-term payday loans to help pay for the cost of housing is totally unsustainable.

“It can quickly lead to debts snowballing out of control and can lead to eviction or repossession and ultimately homelessness.”

The situation is likely to worsen this month after Government caps on housing benefits took effect on 1 January.

The changes mean that people aged between 24 and 35 who live alone could lose up to £40 a week in housing benefit.

In related news, Finnish payday loans firm Ferratum said today that it expects rapid growth in Britain this year.

The company opened for business in the UK in July and gained several thousand new customers in December, as people took out short-term loans to fund their Christmas spending.

Across the industry, Ferratum expects the number of payday loan applications in Britain to increase to 3.5 million in 2012, compared with 2 million in 2011.

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