Three months ago, Linda Stout-Turner had money, a good job and a nice house. Now she is homeless - part of a growing number of middle-class people whose lives suddenly implode as the economic crisis wreaks havoc on jobs, homes and relationships. Across the country, as hostels fill up, charities are warning that it can only get worse

In the spring London sunlight, a tattered, filthy, homeless woman walks along the crowded Strand, trailing a checked sleeping bag behind her. Sitting by the window of a coffee bar, Linda Stout-Turner looks out and recognises the sleeping bag. "There you are, there goes my sleeping bag. That was mine, you can't hang on to anything, and you certainly can't go demanding it back. It makes me furious."

With her mobile phone, clean, pressed jumper and trousers, and carefully applied make-up, Stout-Turner, a sales executive and mother-of-two, merges into the noisy, busy cafe like any other customer - but she hasn't got the money to buy a cup of water.

It's only when the workers and shoppers have gone home, and the pavements empty and darken, that the 52-year-old stands out, as much a homeless woman as the lady dragging the sleeping bag.

She had a house, a rented four-bedroom home in Epping, Essex, where she parked her sleek car after a day spent meeting her £3m sales targets. Now she beds down in a night shelter off Trafalgar Square, on a narrow army cot in a large room of strangers that smells of unwashed bodies, dirty clothes, urine and stale alcohol. She is woken at 6.30am, folds away the bed and has an hour to wash in the hostel showers and dress before the hostel closes and she is out on the street again until 10pm. "I keep myself busy. I have been out for long walks and I go to the library and use the computer to upload and redo my CV. I do the rounds of the recruitment agencies, trying to get myself known. I have set myself a target of applying for three jobs a day."

Stout-Turner has had no home to go to for nearly a month, part of a growing phenomenon changing the picture of Britain's homeless. Charities and homeless agencies are reporting a huge rise in the numbers of once-successful high-earners approaching them as the economic recession begins to strip away jobs, homes and relationships.

Unlike the majority of people traditionally at risk of ending up on the streets, Stout-Turner is not running away from anyone, she has no mental illness or substance abuse problems. But when it all went wrong it happened so fast that she still has trouble taking it in. It began before Christmas, when her rented house had to be sold quickly by her landlord and at the same time she was made redundant. "I was out of a home, so I decided I'd move to London and do a business course while taking agency work. I was absolutely confident that I would have no problem getting work." Several flats she was looking to rent fell through, the course was delayed, the agency work dried up, and finally, while staying in a hotel, she was robbed. "I had nowhere to go and the police directed me to the hostel. It all happened so fast: 25 years of work ripped away with nothing to show for it. They say you are two pay packets away from the streets; well, it's true."

Stout-Turner is clinging to the vestiges of her former, solvent, self. But the slightly unkempt hair and tired eyes show the strain.

"I would never have thought someone like me could have reached this position. The streets are no place for a woman, it's so dangerous out there. Violence is a worry at the hostel, too, but you can't dwell on it. There's a lot of paranoia from the people there. They thought I was an undercover cop at first; now they call me Lady Linda. I haven't slept at all the past couple of nights as it's a bit rowdy at times, people have nightmares or screaming fits. There was a stabbing a few night ago. I have got to the point of exhaustion. I think that's why a lot of them drink as much as they do, just to knock themselves out. My sleeping bag and gloves being stolen made me furious. One woman had her socks and shoes stolen off her feet while she slept.

"I have met a lot of people you would not expect to meet in such a situation: young people, students. One girl I met the other day was a violin student at Goldsmiths. She had her violin stolen. I know a lot of my former colleagues in multinational companies would find this devastating. But I'll get myself out of this."

Her two teenage children are living with her ex-husband and studying for exams and she has kept her predicament from them. "It's the same story with a lot of us - it's the shame barrier. It's not until you get close to the edge of the whirlpool that you realise how easily you get sucked in."

It's a familiar story to Maff Potts. He lost his job with an insurance company and remembers vividly how quickly he lost self-esteem and motivation, finally ending up on the streets. With help, he was able to pick himself up and went on to run a hostel regeneration project for the government, and is now the new director of homelessness in the UK for the Salvation Army. "Of course, it's a worrying time: utility bills are going up and charitable giving is going down.

"We are seeing a lot more requests for food and clothes parcels, but we are expecting to see the real effect of the recession in about a year. It's like there is the top of the cliff and there is the bottom and at the moment a lot of people are clinging on to the top by their fingernails. I'll expect to see them at the bottom in 12 months.

"The single biggest reason for homelessness is relationship breakdown and the stress of things at the moment will be starting that process off for a lot of people. The stereotype of the homeless, the old man of the road, the entrenched drinker with a dog on a string, is changing. It's not a class issue at all: middle-class people are just as vulnerable."

Many of the people the Observer spoke to at shelters and day centres around London whose stories fitted into this mould were too embarrassed to be named, or to discuss their situations but we talked to businessmen, a nurse, a carpenter, a florist and a farmer. All talked of the speed at which things fell apart for them and of a similar pattern - job loss bringing a reliance on credit, followed by inability to pay their debts, rents or mortgages. The nurse could no longer face going to work after being caught bedding down in the clinic when she was evicted from a flat the landlord had failed to pay the mortgage on.

The picture is the same across the UK. In Brighton, Dawn Devaney, advice manager at the Brighton Housing Trust, told of helping a stockbroker who had been sleeping on the beach. "Since Christmas, we have been very, very busy. We are seeing a huge increase in people whose world has just been suddenly destroyed and they're in shock. The advice sector is certainly stretched. We're not crumbling, but we are seeing a massive increase in demand. And for a lot of single people there is no legal requirement for the local authority to help them, or even see them as homeless.

"We are seeing a lot more people who earned very high wages but their outgoings were high too so they are in problems very quickly if they lose their job. We just had a property developer who employed 37 people in. These type of people don't know where to turn, they are not used to claiming benefits and many leave it until it's too late. I would tell people there is help out there."

Nikki Homewood, director of homelessness and complex needs at the trust, agreed. "Homelessness rarely comes on its own; issues such as mental illness, substance abuse and personality disorders often come too and most homeless services are set up for people with support needs. But now we are seeing a very different type of client, people who have been working and earning high salaries, highly skilled, professional people, in a state of shock at just how fast things have gone downhill for them; jobs, relationships and homes all gone in a matter of months.

"They have been made redundant, expected to find new jobs which have not materialised and have maxed out credit cards to pay for rent and food. A high proportion have no understanding about benefits and feel a great loss of pride in walking into a job centre or day centre, and perhaps even have prejudices against homeless people. Some of them won't meet the criteria to get access to a hostel place because they don't have complex needs," she said.

"What is also becoming more common is people in private rented accommodation unaware their landlord is not keeping up mortgage payments until a bailiff's letter turns up.

"Places such as Brighton and Hove do have a significant homelessness problem but we also co-ordinate our services well across the city and have been achieving much better results, probably in a way that a large city like London cannot."

Certainly, services in London can be difficult to access without assistance and it can take a long time to find the right help. Agencies and charities will have to rethink how to best provide help for a different type of homeless person. For some who were living fulfilled and successful lives before being tripped up by job loss or debt, hitting financial rock bottom is what makes them vulnerable to mental illness or a drug or drink problem rather than the process working the other way around."

In England and Wales, a person is not entitled to accommodation unless deemed to be "vulnerable", so single homeless people have less incentive to apply. In Scotland, they are entitled to temporary accommodation and, from 2012, will be entitled to permanent accommodation.

Hostels like the one run by The Connection at St Martin's, where Linda Stout-Turner has found a bed, are already pushed to cope. Demand is rising just as charitable donations are falling. "We are seeing a drop in donations, especially from the corporate sector, although individuals' donations are holding up so far. It's a downward spiral of seeing more and more people just as we are able to do less and less for them," said Clive Glover, chief executive of The Connection at St Martin's.

"Homelessness doesn't quite reflect society as a whole, although we have had BBC producers and professional people. The causes of homelessness are incredibly varied: randomly bad things happen to individuals and some people will have support networks to fall back on and have more options than others. But it will always get worse when unemployment and poverty rises.

"Our numbers have gone up but we don't know yet if all the homelessness charities are seeing a similar rise. The problem with this recession is that there are so very few preventative services, so agencies like mine are really the ambulance service; we pick people up rather than catch them on the way down. At the worst, we can even add to the problem rather than solve it by bringing people into a culture of homelessness that it is tremendously difficult to break out of."

Gripped by that kind of helplessness, construction worker Phil Jacobs cannot see a way off the concrete streets he beds down on as soon as the daytime shift of shop and office workers has gone home. After losing his job, flat and girlfriend in the space of two weeks, he is sharing a regular doorway across from Covent Garden's extravagantly expensive five-star St Martins Lane hotel, with Andy, 26. He earned £24,000 a year as a nightclub manager in Northampton. His mother is a psychiatrist and his father a marine engineer. When the club went bust, Andy came to London to look for similar work but swiftly found himself on the streets as his money ran out and no job materialised.

"I had a good lifestyle. My landlord went under and I had a couple of grand in loans and credit cards and you run out of money. You use up all the favours from your mates and then you can't go home and it just happens." His trainers still look clean and trendy, and he is waiting for an interview for a place in a night shelter. Time is still on his side but only just.

For Linda Stout-Turner, the wheels are turning very slowly but she knows she is lucky to have a hostel place at all. "I have only been at St Martin's for a couple of weeks but already the queues outside are getting longer. The number of new faces is becoming greater. Some will cope and some won't. I will be OK, I know I will. I will get my own place and then I will look back on all this and see it for the bad dream it is."

Living on the street

• Under the 2002 Homelessness Act, all households in England and Wales that are officially recognised as homeless are entitled to advice and support from their local authority. However, a household is entitled to accommodation only if the local authority is satisfied that the applicant is eligible for assistance, unintentionally homeless and in priority need.

• Crisis has estimated that there are about 400,000 "hidden homeless" people, a category that includes all those who satisfy the legal definition of homelessness, but have not been provided with accommodation.

• In the last three months of 2008, local authorities in England accepted 12,070 people or family groups as being owed suitable accommodation.

• 4% of these acceptances were in cases where homelessness resulted from mortgage arrears. There has been a steady increase in the proportion of such acceptances since 2003.

• According to the Council of Mortgage Lenders, there were 40,000 repossessions in 2008 (2007: 7,100).

• Research by the homelessness charity Shelter predicts that the recent collapse in house building will mean a total housing shortfall in England of almost 1 million by 2020.

• According to the most recent local authority street counts, 483 people are sleeping rough in England a night.

• Nationally, there are 187 day centres serving an estimated 10,000 people experiencing or at risk of homelessness every day.

Holly Bentley

• Sources: Crisis, Homeless Link, Shelter, the Council of Mortgage Lenders, Department for Communities and Local Government