The number of people seeking advice because they were struggling with mortgage repayments and other household bills surged in the first two months of this year, and the rising cost of living could force many more people into insolvency, charities warned today.

Citizens Advice said its bureaux in England and Wales had seen a 35% increase in the number of cases involving mortgage arrears, compared with the same period last year.

A survey of 73% of its offices found debt counsellors had dealt with 215,000 new debt cases in January and February alone, many of them involving people struggling to keep up with rising living costs.

As well mortgage arrears, an increasing number of homeowners contacted the charity about problems involving day-to-day costs such as energy, water, telephone and council tax payments.

Meanwhile, the Consumer Credit Counselling Service (CCCS) said it had set up a bankruptcy centre in Birmingham to help the growing number of people finding themselves with too little money to go onto a debt management plan.

The charity said "super-inflationary" rises in basic living costs were making it tougher for people who were in debt, particularly the least well off.

The news comes as the latest inflation figures show a rise in consumer price inflation from 2.2% in January to 2.5% http://www.guardian.co.uk/business/2008/mar/18/economics.interestrates, with rising energy and food costs pushing up the cost of living.

It follows warnings from the Council of Mortgage Lenders that repossessions could rise by 50% this year, as the credit crunch forces lenders to raise interest rates and tighten lending criteria.

Additional pressure
Teresa Perchard, director of policy for Citizens Advice, said the sharp increase in the number of mortgage arrears problems was "worrying".

"These latest figures paint a worrying picture, suggesting a significant number of households are struggling to meet their most basic living costs," she said.

"The combination of big increases in household bills, especially fuel, and rising housing costs is putting additional pressure on people's finances when they are already stretched to the limit."

Despite the rise in mortgage-related enquiries, credit and store cards still account for the largest proportion of debt problem, Citizens Advice said, although the number of cases was down 9% on the first two months of last year, reflecting a fall in outstanding balances across the industry.

However, problems relating to overdrafts were up 7% and debt is now the number one issue dealt with by the charity's counsellors.

It said in the 2006/07 financial year it had dealt with 5.7 million new cases, more than 1.7 million of which concerned debt, and advisers are now dealing with more than 6,600 debt problems every working day.

"If people have debt problems they should get help straight away," said Perchard.

"We cannot stress enough the importance of telling your creditors as soon as you have difficulties in paying - they should treat you sympathetically."

As well as giving advice on repaying a debt, a charity like Citizens Advice could also help someone ensure they were claiming the benefits they were entitled to, she added.

Belt tightening
Separate research published today by credit reference agency Experian suggested consumers and lenders had already begun to tighten their belts before the credit crunch started to bite late last year.

Figures show the total outstanding balances on UK borrowing rose by 9.24% over the last 12 months, slowing from a 14% rise over the previous year.

The total outstanding debt now stands at £1.1 trillion, up from £1tn this time last year.

However, Experian said the "negligible growth" in credit card balances suggested consumers had taken a "more responsible approach to borrowing".

"The debt data shows that, in the last 12 months, growth in lending has slowed markedly across all key credit products (mortgages, hire purchase, loans, credit cards and overdrafts) compared with the previous 12-month period," Experian said.

"Credit tightening on cards, loans and mortgages was already well established in advance of the credit crunch.

"This cautious and responsible approach has prevented an explosion in credit card usage."

The research suggested that people in Richmond-upon-Thames were the most indebted, with £53,533.16 per head, while the least indebted area was Dumfries, with £12,458.07 per head.

Northern Ireland showed the biggest change in total debt, up 23% in the last 12 months, to £17,921.63 a head.

This was followed by Kensington, Chelsea, Wandsworth, Hammersmith and Wolverhampton.


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