An increasing number of shoppers will pay for Christmas on their credit cards, as the number of people struggling to meet their everyday expenses continues to soar.

The cost of borrowing after a series of rises in interest rates is squeezing the finances of consumers, pushing some into further debt.

The Citizens Advice Bureau gave warning that its staff were receiving an increasing number of calls from people who could not pay everyday bills such as council tax. Figures published this year showed that the number of inquiries about falling behind with utility bills had risen by 30 per cent since the previous year, and inquiries about being unable to pay council tax had risen by 25 per cent. A bureau spokeswoman said: “We have no reason to believe that the trends have changed. Significant numbers of people are really struggling to meet day-to-day expenses.”

The Bank of England is not expected to ease conditions for consumers. Its Monetary Policy Committee is expected widely to keep interest rates at 5.75 per cent when it meets on Thursday.

Hundreds of thousands of mortgage borrowers have faced increased payments after their cheaper fixed-rate deals came to an end. Two years ago a borrower could agree a two-year mortgage at 4.24 per cent with a £399 arrangement fee. The best deal on the market at present has a rate of 4.99 per cent, with an arrangement fee of £1,999, costing a homeowner with a £250,000 mortgate an extra initial payment of £1,600, and an extra £108 a month.

Meanwhile, consumers who rely on securing more credit to overcome difficulties in meeting payments will have less room for manoeuvre as lenders become more cautious about offering loans and credit cards.

Neil Munroe, of the credit-reference agency Equifax, said: “Credit rejections are increasing, and are hitting credit cards and personal loans as well as mortgages. In the midst of tightening lending criteria, it is likely that things will get bumpy for consumers.”

The plateau in house prices will also affect consumers who have relied on increasing equity in their home to fund their spending and to secure their retirement. It will restrict their options if they are encountering difficulties in meeting their outgoings, and could lead to the loss of their home. Last week the Council of Mortgage Lenders (CML) forecast that house prices would fall in real terms next year and that there would be a 50 per cent rise in repossessions.

David Stubbs, senior economist at the Royal Institution of Chartered Surveyors, said: “People have been able to offload their property into a strong market if they fall behind on their payments. As the market slows into 2008, we expect the numbers falling behind to increase.”

The Citizens Advice Bureau spokeswoman said: “An increasing number of people are potentially facing court action, so they are at the start of the process that can lead to repossession.”

Bernard Clarke, of the CML, advised homeowners who were experiencing difficulty in meeting their repayments to contact their lender. “There are options available, such as payment holidays, extending the term of the loan and switching to an interest-only deal,” he said.

Experts took little comfort from last week’s insolvency figures, which showed a 14 per cent fall in the number who sought to escape debts by entering into an individual voluntary arrangement (IVA) in the third quarter. Nick O’Reilly, of R3, the association of business recovery professionals, said: “Just because the number of IVAs has fallen by 14 per cent, it does not mean that there has been a 14 per cent drop in the number of people with debt problems.”

On borrowed time

150,000 fixed-rate mortgage deals are expected to expire this year
40% of credit card applications are turned down by lenders
£1,999 the arrangement fee for the current leading mortgate deals
43,000 house repossessions in 2008 predicted by the Royal Institution of Chartered Surveyors

Source: Times database

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