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Households rise above higher level of debtsUK, January 27, 2007 - Household money woes have not worsened in recent years despite increased levels of debt, a think tank has reported. The Institute for Fiscal Studies (IFS) says that financial difficulties are not as bad as are often painted, although for low-income families, access to high-quality credit remains a problem. In an update to research into low income households conducted in the late 1990s, the research institute says that secured debt and credit card debt grew substantially in recent years. Research by the IFS found that while nearly 60 per cent of poorer families with children were tenants in 1999, nearly 50 per cent were homeowners by 2004. The main area of debt growth seen in the study group is through credit card borrowing. The rise in debt put on plastic corresponds with a decline in the use of almost all other kinds of credit, such as store cards, bank loans, mail order and catalogues and various kinds of 'informal' and sub-prime lending. In its research update, the IFS notes: "Despite the growth of credit cards, the research finds no evidence of growing financial difficulties among the sample." It adds that there is a lower risk of repayment difficulties as the study group grows older, indicating growing real incomes over the life cycle and access to better forms of credit. Richard Disney, research fellow of the Institute for Fiscal Studies, says: "When you look at people getting into difficulty with debt we see no evidence that things are getting worse. In fact it looks the other way around, people are reporting fewer problems." Nonetheless, the research update suggests that tenants and lower-income households generally maintain a greater risk of running into difficulties than homeowners. It adds: "High and rising utility bills provide a continued threat to household finances, and slowing growth of real incomes may prove a problem for such families." In addition, lower-income families often have poor or non-existent credit scores, which locks them into debt with high APRs and poses a major difficulty to repayment. As such, the IFS says that policy should focus on minimising major adverse shocks to household finances such as rising utility bills, and addressing the problems faced by consumers who only have access to 'bad' credit products with high APRs. Shadow Chancellor George Osborne said: "Now the respected independent IFS has confirmed what families across the UK know all too well. "Under Gordon Brown, family incomes are failing to keep up with the rising cost of living, and sadly the most vulnerable in society are feeling the pain the most." |
