Debt blights younger generation's chances of buying a home

By Jill Insley Guar Dian.co.uk

Higher debts and declining real incomes mean homeownership is just a dream for many younger people

 Debts incurred when people are young mean that in the future many will not be able to afford their own homes or cars. Photograph: Keith Leighton/Alamy

Early debt problems mean young Britons are unlikely to be able to buy their own homes and other assets as their parents and grandparents did, according to a leading debt counselling charity.
A report by the Consumer Counselling Credit Service (CCCS) predicts a bleak future for many people under the age of 40 as they struggle against higher debts, declining real incomes and increasing difficulties in saving for retirement.
Although debt levels tend to peak when borrowers are in their mid-30s to mid-40s, research for the charity found that more than 1m households in the 18-39 age group are already struggling to cope financially and indicates that another 893,000 are at risk of money difficulties.
Almost three-quarters of people aged 18 to 39 now have unsecured debts, compared with 60% of those in the 40 to 54 age group. Younger households are more likely to use credit to make ends meet, with 19% of the 18 to 24 age group saying they are very likely or fairly likely to need to borrow in the next three months.
People in the 25 to 39 age group are also more than twice as likely – 15% compared with 7% – to be in arrears or insolvent as those aged 55 or more.
The report, Debt and the Generations, points out that the rise in average house prices from 2.3 times to nearly 5.5 times gross earnings has either left younger homebuyers with extra mortgage debt while transferring wealth to those further up the housing ladder, or has excluded first-time buyers from the market altogether.
Higher student debts and lengthier student loan repayments will make it even harder for young households to save, invest or acquire other assets. Total student debt is expected to grow to £153bn in real terms by 2031, with loan repayments amounting to nearly £7bn a year.
The CCCS says this will leave younger generations unprotected should they suffer a fall in income. An analysis of its clients under the age of 40 last year showed that one in three had no money left after covering basic living expenses each month. This rose to between 52% and 70% for those in the younger age bands.
However, the report also found that a minority of older people have extreme debts which they are struggling to repay: 7% of those aged 55 or more have secured debts of more than £150,000. About 12% of those aged 55 or more have a repayment-to-income ration of more than 30%, compared with only 9% of those in the 18 to 24 age group.
Wilf Stevenson, CCCS chairman, said: "The younger generations are facing a worrying future. Higher debts and fewer assets will put many in a precarious financial position, and these trends threaten to impact considerably on quality of life in later years."
"It is also essential they are protected from the aggressive practices of commercial debt management companies who will only add to their debt burden. Making sure that consumers know they can turn to debt charities such as CCCS for free advice and support must be a key part of our strategy in dealing with this problem."
Case study
Rebecca and Chris Canham fell into debt after taking out a £4,000 loan to pay for their wedding. Although the couple had three children, they were able to afford the £250-a-month repayments until Rebecca, who is 28, had to give up work through ill health. The couple hoped claiming on a payment protection insurance policy (PPI) would ease their situation, but the claim was rejected and their debts increased until they owed £12,500.
The CCCS took on their case and negotiated with their creditors to stop further interest piling up. The couple then claimed back the PPI premiums and used the resulting £1,900 and the payout from an accidental injury claim made by Chris at the beginning of the year to reduce the debt substantially.
The Canhams now have £4,500 outstanding and are paying off what they can by saving on food and clothing, even though both are currently living on benefits. Rebecca says: "We eat supermarket brands, buy stuff for the children in shop and car boot sales, and we're not able to buy contents insurance or anything like that. We think we'll manage to pay off the rest of the debt in about two years. Once we're out of this situation we'll be able to give the children a much better quality of life."