A third will fall into debt due to the high cost of energy

7:44 PM Sep 22 2022

A local charity has warned that a third of Norfolk households are at risk of falling into debt this winter due to rising costs.

It comes at a time when borrowing is expected to become more expensive after the Bank of England raised its policy rate to 2.25%.

Although only mortgages are directly affected by the base rate, the decision of the bank usually sees an increase in interest on credit cards and loans as well.

With inflation at 9.9 percent and expected to continue rising until it peaks at more than 11 percent, many households are turning to credit to pay for daily necessities.

Research by YouGov on behalf of Smart Money People has found that 47% of adults in the East of England will have access to some form of new credit within the next year due to the cost of living crisis.

One-fifth (20%) of these borrowers will do so to cover daily expenses.

Norfolk Citizen Advice said its data “reinforces expectations that at least a third of it will go into debt due to increased energy costs.”

Mark Hitchcock, chief executive of the charity, said: “We are working on the data in light of the revised announcement of the energy cap.

“My feeling at the moment is that it will slow down the rate at which people fall into energy poverty and financial debt, but a lot of people are already in this kind of crisis this year and the caps are not going to ease that.”

Mark Hitchcock from Citizens Advice in Norfolk
– Credit: Norfolk Citizens Advice

A hike in the base rate could exacerbate the cost of living crisis as mortgage borrowers see their payments skyrocket.

UK Finance, which represents the finance industry, said homeowners with deals that directly track the base price would see their payments increase by around £49 a month on average.

Those who rely on flat rates won’t see any initial change, but will likely see their payouts rise when they reach the end of their existing trades.

The bank’s decision, combined with the general economic climate, may cause regulated lenders, such as banks, to become more restrictive about who they are willing to lend to.

Borrowers with poor credit ratings, who are often on low incomes and find it difficult to deal with rising costs, can see themselves being denied access to traditional forms of credit.

The Norfolk Community Law Service (NCLS) is a local charity that provides debt advice and usually deals with the most financially vulnerable people.

Marius Zaborovsky of the charity said they expect more people to get into debt to pay for daily living this winter.

“People who come to the NCLS often can’t borrow money from anywhere,” he added.

Marius Zaborovsky of Norfolk Community Law Service

Marius Zaborovsky of Norfolk Community Law Service
– Credit: Norfolk Community Law Service

“Their credit rating is so bad that their only source of additional income, apart from family, is social loans.

“We expect that they will simply start getting into more and more debt with utility companies or for those using prepaid meters they will run out of money or reduce their other essential expenses such as food.

“People don’t report their meter readings – smart meters are the exception – they pay the estimated monthly rate over a long period and live in fear of the possibility of debt looming in the future.

“Someone will come and read their meter and leave them with a lot of debt.”

Zaborovsky said that between April and June 2022, the average amount of debt for NCLS clients increased by 56% compared to the same period the previous year – at £17,528 from April to June 2022 compared to £11,239.

“The average amount of utility debt reported to us has increased from £1,116 to £2,484, which is an increase of 112%,” he said.

“We have also seen a 30 per cent increase in demand.

“So far in 2022, the average number of inquiries reaching our debt advisory service has been 52 per month, compared to an average of 40 inquiries per month during 2021.”

People who are in debt or find it difficult to meet the increased costs should consider getting advice from a debt free charity such as Citizen Advice Norfolk 0800144 88 48.

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