• Household bills that once posed little or no problem can send even the most affluent homeowning Scots to seek expert advice on debt as they are hit by pay cuts or redundancy Picture: PA
Homeowners on middle and high salaries who could previously borrow their way out of difficulty are seeking help in record numbers as they struggle to deal with lower incomes. Almost a quarter of Scots going to the Consumer Credit Counselling Service (CCCS) for help earn more than 20,000 a year, according to new figures from the advice charity. It said 8.1 per cent earned more than 30,000 a year, up from 6.8 per cent in 2007. More than half of those going to the CCCS for advice are homeowners, compared with 44 per cent just three years ago.
And while the average debt of the higher income clients has dropped, the recession has made it harder for them to get on top of repayments.
Frances Walker, of the CCCS, said: "People are seeing a drop in income and their debt is now recession rather than borrowing fuelled. Public sector cuts will make it worse and any rise in interest rates will create big problems."
A similar pattern has been reported by Citizens Advice Scotland (CAS). Anecdotal evidence from advisers indicates a steady increase over the last two years in people from higher income groups seeking help with their debts. A spokesman said the downturn had affected people previously insulated from serious debt problems.
"Indeed, one of the concerns we've had about the changes to welfare benefits is that they are making the system really complicated at a time when many of the people who are making claims have never dealt with the benefits system before and find it difficult to cope with the normal levels of bureaucracy, never mind the new ones."
Nearly half of CAS clients in the 2009-10 year were homeowners, well above the historical level, and those homeowners were significantly more likely to be in employment than other clients. Three in 10 housing issues handled by CAS over the period concerned owner occupier properties. A third of these were about mortgage repayments, even though interest rates have been at a record low of 0.5 per cent since March 2009.
Catherine Bradley, manager of East Dunbartonshire Citizens Advice Bureau, said a rising proportion of its clients were homeowners where both partners are in work and on reasonable wages.
"It's normally due to an over-extension of credit, where someone has been made redundant or lost their commission or bonus," said Bradley. "Many of our clients had not factored a drop in income into their future finances and it has taken them by surprise."
That is exacerbated by a lack of access to credit, particularly for homeowners on middle incomes. "People have been using credit cards for day-to-day costs, but when the financial climate changed they saw their credit cards capped or reduced and started being denied credit," Bradley said.
David Miller, a money adviser from South Lanarkshire Council, made the same observation.
"The options for those who are financially more aware are not there any more," said Miller, who said more people who previously earned around 60,000 to 70,000 a year are hitting difficulties after a drop in income.
"We have always had some higher paid clients needing advice after illness, redundancy or relationship breakdowns, but those factors are now more powerful, particularly unemployment."
The changing face of Scotland's debt crisis is borne out in the changing profile of those taking out protected trust deeds (PTDs), which have seen a sharp rise in the past two years.
PTDs are informal bankruptcy arrangements with fewer restrictions than sequestration and are typically used by debtors with property and assets over 10,000. Some three quarters of those taking out a PTD earn more than 1,000 a month and 2.5 per cent get 3,000 a month, according to the Accountant in Bankruptcy.
Bryan Jackson, of PKF accountants and business advisers, said middle income insolvencies would jump again next year as public sector cuts kicked in.
"Whilst the middle classes have started to be affected by bankruptcy we haven't seen anything yet and the aftermath of this recession could be felt for four or five years to come and the middle classes will be among the biggest casualties," said Jackson.
But a more common solution for those struggling to repay creditors is a debt arrangement scheme.
These are designed to provide debtors with vital breathing space by offering creditors a repayment schedule to which they can agree. Interest and charges are frozen and, provided the rescheduled payments are maintained, creditors cannot take enforcement action.
The first step to take if you are struggling with debt, or anticipate problems, is to seek free advice from an organisation such as the CCCS, Citizens Advice or Money Advice Scotland.
"Early intervention is key," said Bradley. "It's harder to deal with creditors when they have already been chasing the debtor. Don't wait for the arrears to become unmanageable."
Walker at the CCCS echoed the call. "Get advice as soon as possible and make sure you are getting the benefits to which you are entitled."