Michelle
The numbers behind the stories
This is one of a new series of real stories highlighting how different cost-of-living pressures are playing out in the budgets of people coming to us for help.
About Michelle
Michelle lives in the North East with her husband and 2 teenage grandchildren. She works full time and lives in a property which she’s responsible for the mortgage on.
Up until just over a year ago Michelle and her husband were financially stable. They owned 2 cars, were taking home over £3,000 a month, and had a couple of hundred pounds left over each month after paying their essential bills and mortgage.
Last year their situation suddenly changed. A close relative sadly died, and Michelle and her husband became the main carers for their 2 grandchildren. Michelle’s husband is now unable to work due to a number of health conditions.
These changes took their income from 2 full time wages down to 1. Michelle’s outgoings also increased as their household grew — now she needs to feed and care for 2 teenage dependents. It’s proving impossible to make ends meet.
Spotlight on heating and eating
Energy bills have increased, and Michelle used to manage this by keeping the heating off as much as possible. This is no longer an option as her husband has health conditions and her grandchildren need to keep warm. This is an impossible situation for many who face serious consequences if they don’t use their heating. For Michelle, this has led to her energy bill more than doubling, with 19% of her household income now being spent on energy. This is nearly twice as high as the 10% threshold for meeting the Government’s definition of energy poverty.
Added to this are increases to Michelle’s food bill. Inflation driven spikes in food prices, coupled with a necessarily larger shop, have dramatically increased Michelle’s outgoings on food — it’s doubled to nearly £600 per month. This is a common food budget for a household of Michelle’s size. The average spending on food for a household of 4 people is £688 per month in 2020/21 and we know food prices have increased sharply since then.
Spotlight on mortgage rates
Michelle’s increased cost of living has been made worse by increased mortgage rates. Interest rate hikes have increased Michelle’s mortgage payments by 116% per month — from £241 to £520. This has turned her previously realistic and comparatively low mortgage payments into a much heavier financial burden. Unlike in the rental sector, there’s no readily available financial support for mortgage repayments for people who suddenly enter financial difficulty
Many people have seen similar hikes in their mortgage payments recently. At the end of 2022 monthly mortgage repayments were up by an average of 61% for an average semi-detached house compared to the previous year. While homeowners with mortgages tend to be better off than renters, there’s an increased financial risk when the market changes suddenly, or personal circumstances cause a drop in income. Mortgage holders are likely to have more assets, savings, or disposable income, so can often absorb this increase in essential outgoings. But for people like Michelle, who have experienced a change of personal circumstances, this financial burden is much harder to absorb.
Impossible choices
Michelle’s income isn’t enough to cover these increased essential costs. She already works 45 hours a week and can’t work anymore because she needs to be at home to care for her grandchildren. Michelle’s husband is looking for a job to increase the household income, but because of his health conditions, won’t be able to work full time. The family receives some extra income from Child Benefit, and Michelle’s husband receives Employment Support Allowance but this isn’t much compared to how much their costs have increased. As things stand, Michelle’s family’s essential outgoings exceed their income by £263 each month. This is a significant negative budget.
Ticking debt time bomb
Mortgage holders tend to have access to higher levels of credit. But when it becomes more difficult to make ends meet, this can become a ticking debt time bomb. Nationwide estimates that 4 in 10 now use credit for essential daily spending. Once people have maxed out their credit for essentials, they have nowhere else to go to ease strains on household finances. In the meantime, they’ll have accrued debt which they have no way of paying back through their income.
This is the case for Michelle. Because of circumstances outside her control which could happen to anyone, and the financial pressures of the increased cost of living, Michelle is now in a negative budget. Another factor is that she has just over £10,000 worth of debt. A large chunk of this debt is funeral expenses. The other debts are for credit card payments as Michelle has had to borrow money to pay for essentials. This is not unusual for people in Michelle’s situation. Homeowners tend to have higher incomes and credit which results in their levels of debt being higher if they get into debt
Michelle has no way of repaying her debt. This leaves no options for her family and no way to increase their income to cover their essential spending. If nothing changes, every month Michelle will be pushed into increasing debt which will become extremely difficult in a short space of time.
“I can’t work anymore hours as I need to be home to take care of my grandkids. It’s got to the point where we’re borrowing money to get by as we just can’t afford to pay for everything. I’m really worried for the future as if things continue to rise we’ll be pushed further into debt.”
Michelle isn’t alone
Michelle’s situation isn’t unique. Many people will experience life changes, illness, or unexpected increases in outgoings. If mortgage and energy bills hadn’t increased Michelle would’ve been able to absorb the financial costs of an increased household. But dramatic increases in outgoings due to inflation and turbulent mortgage rates have made this impossible.
Michelle’s story also highlights the strain higher costs are putting on people with dependents on a fixed income.
In Michelle’s situation, what would you do?
