Fears have been raised with regard to mounting mortgages and other debt costs that will transpire if interest rates rise.
There has been a projection, by the Institute of Fiscal Studies, revealed by a freedom of information request to the Office for Budget Responsibility (OBR), that Britons will spend over a third more on their mortgages and other household debts over the next five years. This in turn would mean households would struggle to cope with mounting costs of living and may rely more heavily on debt incurred on credit cards etc.
The projection found household debt servicing costs were set to rise to 29% by 2023, the bulk of which are likely to be mortgage debts.
The percentage required to service household debts has been kept very low over the last five to ten years due to a historically low interest rate.
This is all about to change with the Bank of England indicating that it plans to raise interest rates from as early as May. The fear is the worst effected by the rise in interest rates would be millions of low income families and households who have relied on cheap credit over the last few years and now may slip into unmanageable debt.
The banks Governor, Mark Carney has stated he believes the growing economy, including GDP growth and rising wages warrants a rise in interest rates from the historic low of 0.5%.
Labour’s analysis has found that an average household would see an increase of nearly £500 in annual debt costs by 2023.
The OBR stated the rise in servicing household debts reflects a combination of rising mortgage debt and rising interest rates which increases mortgage debt as well as other unsecured credit and debt such as credit cards and personal loans.
Andrew Hood, an economist at the Institute for Fiscal Studies believes wealthier home owners would feel more of the burden. “The vast majority of household debt is mortgages and interest rates are widely predicted to rise over the next five years, so we shouldn’t be too surprised to see the projected debt servicing cost rising,” he said.
“Much of the cost will be born by richer homeowners who have large mortgages and the aggregate figures don’t tell us much about other kinds of household debt such as credit card debt or rent to own loans”.
If you are struggling with unmanageable debts it is vital you speak to a debt specialist at the earliest opportunity. Farleys have a team of experienced solicitors who can provide comprehensive advice and guidance on your next steps. Call 0845 287 0939 or submit your enquiry online.