‘Zombie’ debtors risk going bust as safety net is removed

More Scots are struggling to clear their debts and are at risk of going bust, according to a report revealing growing anxiety in Scotland over the financial outlook.

Research by insolvency trade body R3 found that more than one in three adults in Scotland expect their financial situation to deteriorate over the next six months.

The figures are published as the Scottish government comes under fire after slashing an assistance scheme for households having difficulties paying their mortgage.

R3 found that four in ten Scots are spending less as they grapple with the rising cost of living, with a fifth having no savings to fall back on. But personal debts remain the biggest concern, with the rise of so-called “zombie” debtors unable to clear their loans.

Of those Scots worried about their debts, 65 per cent are particularly anxious about credit card repayments, compared with 50 per cent across the UK as a whole. A third are concerned about overdrafts and a quarter about bank loans, both higher than the UK averages.

With household finances squeezed by rising living costs, unemployment, low wage inflation and government spending cuts, 9 per cent of debtors in Scotland are only able to repay the interest on their overdraft each month. Another 5 per cent clear only the interest on their credit cards, unable to eat into the actual loan.

Such “zombie” debtors are vulnerable to changes in their circumstances or a rise in the Bank base rate and are at risk of personal insolvency, R3 warned.

John Hall, Scottish council member for R3, said: “What is worrying is that so many individuals are simply treading water with their debts and only able to make minimum payments. The issue for these people is that the slightest change in their circumstances means that they will rapidly be plunged into insolvency.”

Susan McPhee, acting chief executive of Citizens Advice Scotland, said: “This research corresponds very much to the trends we are seeing in the CAB. Debt now makes up more than a quarter of all CAB cases in Scotland. It is very clearly a growing problem and really does destroy peoples’ lives if it is not dealt with.”

Una Farrell, spokeswoman for the Consumer Credit Counselling Service, agreed.

“Wage freezes, redundancy and inflation are pushing many household budgets over the edge. This is all leaving them unable to service their debt, let alone repay it, and pushing them into financial armageddon,” she said.

And Hall believes the financial pressure on households across Scotland is some way from relenting. “All of these issues, coupled with increasing unemployment, means that this year will be more of the same as last year,” he added.

The report comes following the Scottish government’s decision to slash the homeowner support fund from £18.5 million to £10m, a move that will reduce access to the mortgage to rent and shared equity schemes aimed at helping keep struggling families in their homes.

Mike Dailly, principal solicitor at Govan Law Centre, said: “The Scottish Government’s massive cut to the mortgage to rent scheme is sheer madness at a time when more Scottish households are feeling the pinch financially and being threatened with repossession.

“For hundreds of families and citizens, this scheme is the final safety net to prevent them becoming homeless, and for their kids not to have to move school and be stripped of the roof over their heads.”