The way how many low paid households handle their debt management is leaving them at an increased risk of homelessness, according to a leading thinktank.

Findings from the Resolution Foundation have shown that around a quarter of the 14.3 million households receiving low pay, are in danger of being sucked into poverty.

The research found that 24% of low-wage households (those with an average income of £15,800) spend more than a quarter of their monthly income on servicing debts – double the figure from three years ago.

In a survey commissioned by the then Department of Trade and Industry, four ‘objective’ indicators of over-indebtedness were identified, one being where individuals spend more than 25% of their gross monthly income on repaying unsecured debts.

A third of low-income households were also found to have high loan-to-value loans on their mortgages or were in negative equity, making them more vulnerable to having their home repossessed if they were to lose their job.

Sue Regan, chief executive of Resolution Foundation, said: “What’s important is it’s not so much about when we get out of recession. It’s how sustainable the economy will be going forward if we increasingly see low-income households default on loans or lose their house. If we don’t address this, it has got big economic ramifications for UK plc.”

Ivan Cooper, Chairman at debt advice experts Chiltern, said: “Increasingly, with unemployment steadily rising, we are seeing more people who are finding it difficult to maintain credit commitments following a job loss.

“For those households on already overstretched budgets, the loss of an income can be even more significant, as it then means that they run the risk of developing serious debt problems or worse, losing their home.

“Fortunately this can usually be avoided if they seek impartial debt help quickly, as debts can often be rescheduled – enabling them to be repaid at a more affordable level.”