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Debt Hits Middle Classes, As Affluent Areas See 200% Rise in Debt Problems

Millions of middle class debtors are finding themselves in serious trouble, recent research from debt advice charity Transact has shown, as the credit crunch starts to hurt wealthier UK residents. Debt advice charities in more affluent counties, such as Tunbridge Wells, Cambridge and Horsham, have seen an increase in enquiries of up to 200% in the past twelve months.

Anecdotal evidence from these charities suggests a significant switch towards wealthier middle class debtors who are suffering from the effects of the credit crunch. This growing breed of client includes a retired bank manager from Sussex with an annual income of £40,000 and £110,000 of debt across 20 credit cards and loans. In the Midlands, an IT manager on a £28,500-salary has £28,500 of unsecured debt and a county court judgement against him.

The data suggests that the drop in house prices and rise in mortgage payments is to blame for this sudden rise in middle class debt and insolvency. Plenty of wealthier individuals have been spending heavily on home improvements, anticipating that the growth in equity would cover the cost. With so much money invested in property and high levels of secured and unsecured debt, the drop in house prices has dealt a body blow to many households that have overstretched themselves.

In many ways this is unsurprising. Higher earners are offered more credit and can consequently run up very large debts if things spiral out of control. What this shows is that debt is not a problem that is confined to a particular class, no matter what the popular perception may be. No one thinks of debt as being a middle class problem, but with so much middle class wealth invested in suddenly unstable housing market, it hasn�t taken much to put some people into a very difficult position. Debt is often caused by unforeseen circumstances, but is also frequently caused by people living beyond their means on cheap and easy credit, no matter what their profession and personal circumstances. As the effects of the credit crunch really begin to take hold, anyone with unsecured debts or a recent mortgage needs to urgently assess their finances to make sure they are out of harm�s way.

New Research Reveals Drop in Household Income

A study by the Centre for Economics and Business Research (CEBR) has found that most families� disposable income has fallen by around �8 a week over the past 12 months, putting considerable pressure on those trying to get out of debt.

The CEBR report, which was commissioned by supermarket giant Asda, found that the average family income was around �633 a week - some 3.6 per cent higher than May last year.

However, it warned that taxes and National Insurance had risen by around 6.5 per cent over that time. The report said that once this was taken into account, alongside the higher costs of essential household spending like transport, utility bills, food, clothing and accommodation, the average family found itself with just �131 a week - a 6 per cent drop since May 2007.

It noted: "The prices of important essentials such as food, gas, electricity and transport have all risen considerably over the last year - with inflation for all these categories in excess of 6 per cent.� Recent Government figures have also revealed the knock-on effects of higher fuel and food bills, with annual inflation at an 11-year high.

The data showed that in May, the consumer price index (CPI) measure of inflation increased to 3.3 per cent, higher than at any time since the CPI began in 1997. The retail prices index, which is the measure of inflation used most often during wage negotiations, increased to 4.3 per cent, and has easily outstripped average pay increases since the beginning of last year.

Bank of England governor Mervyn King has also warned that many people will see their incomes stall this year, due to rising prices, which may affect their ability to clear debt.