A million people use overdraft to pay rent and mortgage
One in ten people dip into their overdrafts to cover the payments – the equivalent of 1.2 million people.
Of this number, 20% use their overdraft to cover the full amount, while a quarter use it cover, on average, half the cost.
Overall, research from comparethemarket.com revealed that a third of UK adults have to dip into their overdrafts because they have run out of money before the end of the month.
And for two out of five people, they need to use their overdraft for emergency funding, while for 23%, they use the facility to cover everyday bills. This means many can’t save for a rainy day.
Given the average rental bill stands at £886 and mortgage payments come in at £680 a month, using an overdraft can be a very expensive way to fund the costs.
A radical shake-up of overdraft rules to be implemented next month could mean people pay more.
From 6 April 2020, fixed daily or monthly charges will be scrapped and banks must charge a simple annual interest rate for overdrafts as they will no longer be able to charge customers higher prices for unarranged overdrafts in comparison to arranged overdrafts.
However, in response, lenders have hiked overdraft rates to as much as 50% EAR.
John Crossley, head of money at comparethemarket.com, said: “During the course of life we will all have rainy day moments when we’ll need to use emergency funds. On these occasions, people need pots of money to dip into – a savings nest egg. Relying on overdrafts to fund regular bills, including mortgage or rental payments, can be a costly way of managing household finances.
“With the rise in overdraft fees, there are other solutions available to pay off debt in a responsible way. Borrowers should ensure they only borrow what they can repay and use a soft eligibility checker to prevent damaging their credit score. Anybody struggling to make repayments should contact their provider in the first instance.”