Total household debt came to £1,437bn in 2013, 314% higher than 1990 levels, while 89% of the debt was in the form of mortgages.
In contrast household incomes rose by just 203% between 1990 and 2013.
Every 0.5% increase in the Bank of England base rate would result in a £4.8bn reduction in household spending, while Verum concluded that if the base rate rose to 3% the UK economy would fall back into recession.
Robert Macnab, Verum’s director of research, said: “This elevated level of mortgage debt is unsustainable. In a stable housing market, house prices should grow at the same rate as household incomes so that periodic ‘booms and busts’ are avoided.
“So unless wages increase quickly, which is unlikely, our analysis of the relationship between household incomes, debt and property prices indicates that UK house prices are currently over-valued by 28%. The average should be nearer to £180,000 and not £250,000 as it is at present.”
And James Fitchett, professor of Leicester University School of Management, added: “The prospect of even slightly higher marginal lending rates could have a catastrophic effect on the economy.”
Less than half of gross income was spent on essentials such as housing, food and fuel between 1995 and 2004, yet it topped 55% in 2008.
Verum said that if 12% of household disposable income is spent on servicing debt payments then household spending would be drastically cut back, bringing the recovery to a halt.
