Borrowers who are struggling to make payments on their mortgage are being urged to contact their lender in the first instance after it emerged many may be getting into more debt to cover the payment.
Research by the price comparison website found 13% of people in the UK were relying on overdrafts to cover the cost of rent and mortgage payments, which is the equivalent of 1.2 million people.
Of these people, 20% used their overdraft to fund the full payments and quarter used it to cover half the cost.
High cost credit
This is despite the fact overdrafts are one of the most expensive forms of borrowing. Indeed, the financial regulator warned in some cases unarranged overdrafts could cost customers 10 times more than payday loans.
The Financial Conduct Authority (FCA) also described the market as ‘dysfunctional’ and has since implemented changes to make fees and charges more transparent.
In response, most banks have announced they will charge flat fees of 39.9% to customers going into their overdraft.
Only Lloyds and challenger banks Starling and Monzo have announced a different percentage, which will be tied to customer credit scores.
According to the research, over a third (37%) of individuals thought the flat rate of 39.9% would end up costing them more money.
Eligibility checker
John Crossley, head of money at comparethemarket.com, said: “Relying on overdrafts to fund regular bills, including mortgage or rental payments, can be a costly way of managing household finances.”
He added: “With the rise in overdraft fees, there are other solutions available to pay off debt in a responsible way.
“Borrowers should ensure they only borrow what they can repay and use a soft eligibility checker to prevent damaging their credit score. Anybody struggling to make repayments should contact their provider in the first instance.”
Currently, according to comparethemarket, the average mortgage repayment is £680 per month and renters are paying £886, typically, on a monthly basis.
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