Brokers said unsecured debt was very easy to obtain, with only a credit check required in a lot of cases.
Some noted that often loans were offered through digital banking, making it simpler to potentially take out significant sums of money.
Rob Derry, managing director of Brunel Mortgages, said: “It is absolutely crazy, they do a basic credit check and then the funds can be sent over super quickly.
“Someone with good credit score could log on and borrow a significant amount of money and stick it somewhere and stretch it out to the maximum term in case they want to cover rising bills in the near future.”
He said there may be a lack of understanding about how taking out such loans could negatively impact a credit score, and that some borrowers may have a certain complacency around their credit score and assume it will always be good.
Derry said digital banking users were often offered loans through a lender’s app, which created a sense of trust as users may assume that they would not be offered the loan if the bank did not think they could afford it.
He also said when people check their credit score, they could then be offered more credit cards and loans, which could be very tempting in the current cost of living crisis but may not be the most financially responsible decision.
He continued that as the cost of living rose, people may access loans to save for a “rainy day” but not realise the long-term ramifications this could have on their mortgage affordability.
Derry explained that the monthly loan payment would go down as a regular commitment, and therefore decrease what the customer could afford and therefore borrow for a mortgage.
“It should be a lot harder to get unsecured debt. People might feel the pinch initially but then it would be better for their financial health in the long-run.”
He said that more checks should be needed before unsecured debt was given, whether that was in the form of pay slips or banking statements for that extra level of protection for the consumer.
According to recent figures from The Money Charity, the average total unsecured debt per adult was £3,771 in February this year. This compares to £3,724 in February last year.
The average total debt per UK household in the same period was £63,803, which is up from £60,935 in February last year.
Existing mortgage borrowers could struggle to remortgage
Zoe Goodchild, managing director at Apostle Financial Services saidexisting mortgage borrowers could be “tempted” to take out unsecured debt to “try and sail through this cost of living crisis”.
She added that as the cost of living worsens, the number of people looking at unsecured debt or second charges would rise and could “cause major issues should property prices start to fall”.
“For us, the question is not if house prices fall, but when. Borrowing at the moment is dependent on many things, namely a good credit file, steady income and loan to value, however this potential extra debt people may get into will undoubtedly cause issues should they need to remortgage,” she explained.
She said some lenders would still have the appetite to lend to people in such situations but this could “come at a cost that many will not be able to afford”.
Goodchild urged those looking at taking on additional debt to seek advice from a broker to explore different options such as remortgage or a secure loan.
Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said those thinking about borrowing money to pay household bills should reconsider.
“This is not going to help you in the long run and will likely create issues for you in the not-too-distant future. Mortgage lenders hate seeing payday loans [or unsecured debt] on someone’s credit file, so you really could be shooting yourself in the foot. Borrowing more money when you are already struggling is very rarely the right move,” he said.
He said those who were really struggling should ask for help from existing lenders across the board, whether that is for a car loan, credit card, personal loan or mortgage.
“Ultimately, it is in their best interest to help you pay the money back to them, so they have teams set up to help. That could mean something as simple as them agreeing to a longer term to reduce your payments, or a temporary period of time on interest only,” Taylor-Barr added.
He noted that action could be “more assertive” as lenders could agree to help once they have assessed your income and expenditure and then ask to cancel certain items first, such as TV and entertainment packages.
Borrowers should seek a mortgage broker and contact bill providers
Samantha Bickford, mortgage and equity release specialist at Clarity Wealth Management, said borrowers considering taking out unsecured debt should contact household bills providers to see what support could be available and examine outgoings to see what could be reduced.
She added that speaking to a mortgage broker could be vital, as the mortgage was often the biggest financial commitment.
“For those that do find themselves in this situation, specialist advice from a qualified whole of market mortgage broker will be vital in these situations to ensure that they can access the most suitable mortgage options,” Bickford noted.
“I am passionate about ensuring those with ‘real life situations’ can still obtain the most suitable mortgage deal for them and I am concerned there will be lots of first-time buyers or existing homeowners in this situation in the future.”