Worried about bills? Here’s a financial survival plan

Against this backdrop, many households need to act now to get through the worst cost of living crisis in decades, say experts.

For those who are struggling but just about managing, debt specialists told us how to prioritise bills, mortgage advisers how to cut monthly costs, energy experts how to pare back home heating bills, and food writers how to make a weekly plan.

But what about households that are not financially sinking but have actually sunk and just can’t pay their bills? The experts also advised us on some of the options, including the right way not to pay.


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The monthly mortgage

 

House key on a house shaped silver key ring in the lock of a door

How costs are rising

For the 2.2 million people on a variable rate mortgage of some sort, Thursday’s interest rate rise was very bad news and will mean many having to pay hundreds of pounds extra a year.

It has also been a very tough time for anyone looking to take out a new fixed-rate mortgage. About a year ago the average new two-year fixed rate was priced at 2.25%, but in recent weeks typical new rates have leapt above 6%. On Thursday this week the average new two-year fix was 6.46%. On a £250,000 home loan (repayment, 25-year term), a 2.25% rate would mean a monthly cost of £1,090, while on a 6.46% rate it would be £1,681.

More than 6m existing UK mortgages are fixed, so for the time being these people are insulated from this latest interest rate rise.

What you can do now

Ray Boulger at the mortgage broker John Charcol says the simplest way to cut your monthly mortgage bill is to extend the term, though this will increase the amount of interest you pay overall.

“It will depend on your age, with most lenders offering a maximum age of 75. If you are, say, 50 years old and have 10 years left on your mortgage, extending it to 75 will make a big difference,” he says.

Bank of Ireland UK’s mortgage calculator shows that a borrower with 12 years left on a £150,000 loan will have to pay £1,463 a month at an interest rate of 6% but that this drops sharply to £966 a month if the mortgage is extended to 25 years.

Different lenders may have different rules. For example, Nationwide building society says: “You can apply to extend or reduce your mortgage term at any time.” However, it warns you will be affordability-checked and that you can’t apply if you are already in arrears.

The other main option is to switch from a repayment loan to an interest-only loan.

“You can ask your lender for a temporary interest-only period, which will significantly reduce your payments,” says Boulger, who advises borrowers to negotiate for as long a period on interest-only as the bank will grant.

A £200,000 mortgage on a 6% interest rate and with a 25-year term drops from £1,289 a month to £1,000 if the borrower switches fully from repayment to interest-only.

What to do if you can’t pay

If you get to the end of the month and let the direct debit bounce, then about two weeks later you are likely to get a letter or call from your mortgage lender.

It is much wiser to contact your lender first. Write to them, saying why you are struggling to pay and what you can afford each month. The rules say that your lender must consider any reasonable request from you to change when or how you pay your mortgage.

“Lenders see repossession as a last resort, and the courts are very reluctant to grant a repossession order if the borrower has made an effort to pay,” Boulger says.

Ultimately, the best course of action for some people may be to think about selling their home. “If you can’t find any other way of clearing your mortgage debts, you might want to think about selling your property. This would give you a lump sum of money which you could use to pay off your mortgage,” Citizens Advice says. But finding a buyer at the price you need may be difficult if some of the forecasts for what could happen to house prices prove correct. While some commentators have predicted property values may fall by 20%, others don’t agree. The property website Zoopla said this week: “The most likely outcome for 2023 is … a modest decline in house prices of up to 5%.”


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The monthly rent

 

Placards from various estates agents advertising new properties to let in 2021 in Leeds

How costs are rising

The housing charity Shelter England says almost 2.5 million renters are either behind with or constantly struggling to pay their rent – an increase of 45% since April 2022.

Data indicates average private rents in Britain have soared to record highs. The property site Rightmove said a fortnight ago that the average advertised rent in Manchester, Birmingham and Greater London was 20%, 17% and 16% higher than a year ago.

A big unknown in the future is how buy-to-let landlords will respond to the current conditions. Many have multiple mortgages on an interest-only basis and can expect steep rises in costs. “Many landlords are coming to refinance and finding in some cases they cannot do so under current rates and stress-testing,” Chris Sykes at the broker Private Finance says. Many will attempt to push up rents but may well struggle to find tenants able to afford increases. Others may abandon the market, evicting their tenants in order to sell up.

What you can do now

Many renters will be in despair. Shelter England says: “Reusing your old teabags, putting on another jumper, taking shorter showers or just ‘working more hours’ … Some of these ideas are sensible, many are ridiculous and some are just insulting – patronising people who are already doing all they can to get by.”

A Citizens Advice bureau in Bolton, Lancashire

It recommends people email their MP demanding an increase in housing benefit and caps on rent increases.

If things are tough, and you have a good relationship with your landlord, you may want to have a chat.

What to do if you can’t pay

Citizens Advice says that if you fall behind with your rent in a private tenancy, talk to your landlord straight away. “Pay what you can and ask them for more time to pay. Don’t ignore the situation. Your landlord can start the eviction process straight away.” If your landlord ignores you, keep a record of how much you have tried to pay and when you have tried to pay it. This might help you later if your landlord takes you to court.

Shelter has a range of factsheets (different rules apply in different parts of the UK) at shelter.org.uk.

Like others, it recommends checking if there are any benefits or payments you may be entitled to that you are not claiming.


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Household bills including energy

 

A cuddly toy on a radiator

How costs are rising

The current 10.1% inflation rate is driven by food and fuel costs but consumer goods have also risen steeply in price, and credit card rates and average personal loan rates for new applicants have been increasing.

What you can do now

Every debt adviser will tell you first to work out your budget, and there are lots of free templates available on the internet. The debt charity StepChange has a comprehensive budget tool you can print off and fill in. National Debtline’s budgeting tool is here.

Sara Williams, who has worked as a Citizens Advice adviser and set up a noncommercial blog called Debt Camel, recommends households should open a separate account at the bank to be used for paying all your direct debits and standing orders, covering the rent, council tax, energy bills, etc. “You then know that the money left in the other account is the genuine spending money. At least you know the essentials are being paid.”

For example, if you know your current fixed-rate mortgage deal is coming to an end, try to work out now what the additional cost might be. “Cancel stuff now. Cancel holiday plans. Make the difficult decisions now,” Williams says.

Obviously, this winter’s heating bills will be the focus of many people’s money worries. Adam Scorer, the chief executive of the charity National Energy Action, says: “Every marginal saving helps. It makes no sense to leave appliances on standby or overfill a kettle. If people can do it safely, then turning the thermostat down a degree, or reducing the flow temperature on a combi boiler, can save even more.”

However, he believes these savings are indeed only marginal in the context of galloping bills. “Many are far beyond those sorts of options. Those who simply will not heat their homes. Who will layer on more clothes and go to bed early. They may forage for wet pallets to burn. They may turn to pawn shops, scratchcards, high-cost credit or worse.” His charity is calling for the government to “do more for those in real jeopardy this winter”.

The Guardian has published lots of articles on controlling your energy usage. Meanwhile, the consumer body Which? lists 17 ways to cut down on household bills and living costs. Apart from the energy-related ones, it recommends switching your broadband provider, changing your mobile phone contract and shopping around for home and car insurance.

Williams says she has been alarmed by the rise in spending on subscriptions that began during lockdowns. “You find that both people in a relationship are paying for Amazon Prime. Make a thorough list of all your subscriptions and be ruthless about cancelling them.”

What to do if you can’t pay

Credit card and store card debt, buy now, pay later debt to companies such as Klarna, payday loans, even water bills … These are, in the industry parlance, “non-priority debts”.

Your first step should be to identify your priority debts, and top of the list are your mortgage, energy bills and council tax.

A pile of credit and debit cards

Next, draw up a financial statement that shows your income, what you need to spend and how much you are able to offer your creditors each week or month. Contact your priority creditors first to make offers, before making any payment offers on non-priority debts.

A good tip is to make payments as soon as you can, even before the creditor has said whether they will accept your offer. This should encourage a creditor to accept the offer.

Then move on to your non-priority debts. When it comes to cards, catalogues and unsecured loans, Financial Conduct Authority rules say that customers have to be treated with “forbearance and due consideration”. This means firms must consider accepting lower payments and freezing interest.

If this all sounds overwhelming, there are numerous debt charities that will work on your behalf, and their websites often contain template letters to send to creditors. Williams recommends National Debtline (0808 808 4000). If you have some money to pay your debts, talk to StepChange (0800 138 1111).

All debt advisers will also recommend you make a thorough check of what state benefit entitlements may be available to you. A great starting point is the benefits calculator at Turn2us.

What if I can’t pay my gas bill?

Technically, a gas provider can cut off your supply if you haven’t paid within 28 days. But disconnections are rare, and suppliers have to obtain a warrant to enter your home, plus give you seven days’ notice in writing. Pensioners are protected. Age UK says: “If everyone in your home is of pension age, they can’t cut off your energy supply between 1 October and 31 March.”

Citizens Advice says you should tell your supplier that you want to pay off your debts in instalments as part of a payment plan. “You’ll pay fixed amounts over a set period of time, meaning you’ll pay what you can afford. The payment plan will cover what you owe plus an amount for your current use,” it says. It cites an example of someone owing £400, who then agrees to pay £40 a week, with £10 of that set aside to cover the debt and £30 to cover current energy usage.

Note that your energy company is likely to make you shift over to a prepayment meter, although there are rules preventing them doing so in some cases.


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Grocery bills

 

Piles of fruit and vegetables

How costs are rising

Soaring food and drink prices were the biggest driver behind the most recent cost of living increase, with an annual rise of 14.6% – the fastest annual jump since 1980 – as the price of bread and cereals, meat, milk, cheese and eggs shot up. However, the prices of some budget grocery items have leapt by almost two-thirds in a year.

What you can do now

The top tip from all the food bloggers is to cut out waste. Each year it is estimated the average family throws away more than £700 of perfectly good food.

For some simple hacks, tips and guidance to make the most of your food at home, try the Love Food Hate Waste website, which is devoted to avoiding food ending up in the bin. It recommends we all keep an “eat me first” shelf in the fridge to keep track of the most vulnerable fresh food about to go off.

For a serious budget makeover of your weekly cooking, try Cooking on a Bootstrap by the food blogger Jack Monroe. Tasty casseroles, fish pies, pasta dishes and stews, priced (at the time) from as little as 24p a serving.

Meanwhile, the frugal cooking group Feed Yourself for £1 a Day has 250,000 members on Facebook.

Other blogs and videos worth exploring include Thrifty Lesley and the chef Ash Hamilton’s video series where he tries to cook lunch and dinner for five days for a family of four on a budget of £25 (he ruefully admits that was 2019, and now the budget will now have to be higher).

The British Dietetic Association has some basic rules for saving money on food: make meal plans before you go shopping, take the shopping list with you, don’t buy when you are in a rush, avoid shopping on an empty stomach, and go to the larger supermarkets rather than the “express” or “local” stores, as they have a wider range of cheaper own-label products.

Donated food is seen stored on shelves inside a food bank in Bristol, England

What if you can’t even afford food?

Hunger levels have more than doubled since January, according to the Food Foundation charity, with almost 10 million adults and 4 million children unable to eat regular meals in September, while the Trades Union Congress said one in seven people in the UK were skipping meals or going without food.

The Trussell Trust, which supports a nationwide network of food banks, said it expected to hand out 1.3m emergency food parcels over the next six months.

You can find your local food bank here or by calling 0808 208 2138 in England and Wales, 0800 915 4604 in Northern Ireland or by contacting your local authority in Scotland.

If you contact the Trussell Trust, it will talk through your situation and put you in touch with a relevant local agency (for example, a housing association or advice charity). That agency should then supply you with a food bank voucher where appropriate, which you can exchange for a minimum of three days’ emergency food.

You do not need a referral to use some other local food banks and pantries.

A typical Trussell Trust food parcel includes cereal, soup, pasta, rice, tinned tomatoes or pasta sauce, lentils, beans and pulses, tinned meat, tinned vegetables, tea or coffee, tinned fruit, biscuits, UHT milk and fruit juice. Sometimes essential nonfood items such as toiletries and hygiene products will also be provided.

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