Fifth of Scots in 'serious financial difficulty' amid housing crash

One in five households across Scotland are now in serious financial difficulty, with the rapidly escalating cost of living crisis disproportionately impacting on families north of the border, according to a new report.

Around 21 per cent Scottish households - approximately 540,000 - say they are facing serious financial hardship, worse than at any point since the beginning of the pandemic, with nearly a quarter (22 per cent) warning that they faced a constant struggle to pay bills, compared with just 15 per cent of households in England.

Finance experts warned that the stark findings were “hugely concerning,” and said it was “vital” that vulnerable groups such as lone parents and disabled people received more government support.

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It comes amidst growing fears that hundreds of thousands of Scots could face further hardship, with interest rates pushing up mortgage costs and increasing the likelihood of a sharp drop in property prices. Some analysts have warned that house prices could slump by as much as 15 per cent next year.

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With Kwasi Kwarteng’s tax-slashing mini-budget continuing to cause havoc in the markets, the latest financial impact tracker report, commissioned by the abrdn Financial Fairness Trust, and analysed by a team at the University of Bristol, shows a significant minority of Scots are already struggling.

The project, which has been monitoring the personal finances of households since the start of the pandemic, found that close to one in four households in Scotland (37 per cent) have been cutting back on their energy consumption so as to avoid steep bills. The equivalent UK figure is just 30 per cent.

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A quarter of Scottish households have also cut back on food spending, compared to one in five households across the UK.

The latest iteration of the tracker, which draws on a survey of 5,716 UK households, also found that just 34 per cent of Scots said they had no savings to fall back on, compared to 24 per cent of English households.

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One in five households across Scotland are now in serious financial difficulty, according to a new report. Picture: John Devlin

Professor Sharon Collard, chair in personal finance at the University of Bristol, said: “It is hugely concerning that so many Scottish households are going into winter worried about whether they can afford to turn their heating on.

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“It is vital government offers more support to vulnerable groups, such as lone parents and disabled people who are least able to weather the coming financial storm.”

Mubin Haq, CEO of abrdn Financial Fairness Trust, said: “On a range of measures, the costs of living crisis is hitting Scottish families harder than families in England. There are significantly more who are in serious financial difficulties, finding it a constant struggle to pay their bills, and with few savings to fall back on.

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“Despite Scotland having a lower poverty rate than England, anxiety levels are much greater. This is likely to be driven by even greater concerns about energy bills given these costs are higher in Scotland, especially in rural areas.”

He added: “The main levers lie with the UK government in alleviating the pain many are facing, and in last week’s mini-budget there was little focus on how to help those on lower incomes. However, the Scottish Government has an important role to play, and has made positive steps in increasing the Scottish Child Payment.”

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However, the report was based on surveys carried out before the last two hikes in the interest rate by the Bank of England. WIth some estimates suggesting rates could reach as high as six per cent next year, the financial problems facing many households with mortgages will only intensify.

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That is especially true of the estimated 115,000 households on standard variable rate mortgages, as well as the 85,000 on tracker loans, which fluctuate with the Bank of England rate.

With mortgage lenders withdrawing rates at a pace not seen since the financial crisis of 2008, a growing number of analysts are warning that house prices will fall into 2023.

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Ray Boulger, senior mortgage technical manager at the mortgage broker, John Charcol, said that while the picture was uncertain, he anticipated a decline in prices by as much as 10 per cent.

He warned that the spike in gilt yields - the interest paid on the UK government’s debt - coupled with the prospect of the Bank of England hiking interest rates as high as six per cent by next year, made it “very difficult” for lenders to know how to price mortgage products, which would in turn impact on the housing market.

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“That's the fundamental cost that lenders have to pay or dictates the cost lenders have to pay to borrow money,” Mr Boulger explained. “They just don't know where that's going to go, how much higher is it going to go?”

“We can expect to see a significant fall in house prices, perhaps 10 per cent next year. Whilst at the moment I don’t think we’re going to see many more forced sellers … it’s certainly going to have an effect on people’s ability to buy.

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“A key factor in house prices is how much people could afford on their monthly mortgage. So obviously supply and demand is always an issue. But the bigger issue on a sort of grander basis is how much can people afford.”

Andrew Garthwaite, an analyst at Credit Suisse, stressed that the future could bring an even steeper drop in house prices, with falls of between 10 and 15 per cent. “On current swap rates, the average mortgage will be 6.3 per cent,” he said.

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Andrew Wishart, senior property economist at Capital Economics, has also warned of a similar slump.

He said: “The rise in market interest rates that has already happened will push up mortgage rates to at least six per cent and reduce the size of loans that lenders can offer. The resulting drop in buying power makes a significant drop in house prices inevitable."

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