Despite the current robust economic picture, the levels of personal debt on credit cards, personal loans and mortgages have never been higher. Commentators have warned people are overstretching themselves.
With another Bank Base Rate (BBR) rise expected before the end of 2006, Fitch Ratings claimed more people than ever before would feel the pinch.
Brian Coulton, senior director, sovereigns at Fitch Ratings, said: “The amount of debt people are shouldering is very much a 21st century phenomenon. Up until this century, the distribution of debt meant that while debts went up with an interest rate rise, people savings went up to compensate. However, rate rises are now having a direct negative impact on cashflow.”
Though the rising level of debt in the UK is causing concern, Coulton claimed the extent of fixed rate mortgages was helping to keep a lid on the impact.
Coulton believed rates would have to go up by between 4 and 5 per cent to produce a scene similar to that of the late 1980s and early 1990s.
However, Gordon Scott, managing director, banks at Fitch Ratings, warned:
“Rates are lower than at the last ‘credit crunch’ but there is an increasing number of households close to the edge. Inflation in other areas is hitting household inflation and this isn’t being compensated by higher wages.”
Simon Biddle, head of marketing and communications at Infinity Mortgages, said: “It will take significant changes in the UK and world economy for us to hit previous high levels of debt.”
