The UK is a long way from the debt meltdown predicted by some analysts, figures from Alliance & Leicester have claimed.
As bankruptcies and other debt management schemes such as Individual Voluntary Agreements (IVAs) have hit record take-up levels, some doom-laden commentators have predicted that personal debt could cause deep seated imbalances in the UK economy.
Despite the massive rise in personal borrowing, UK interest rates would have to double before payments became a cause for alarm, said Alliance & Leicester.
Despite the massive increase in personal borrowing, the proportion spent by each household on homeowner loan deals, credit cards and mortgage payments stands as 13.8 per cent of annual income.
This is in sharp contrast to the last great period of economic upheaval in the UK in 1990, when total payments stood at 25.7 per cent of annual income.
Thanks to low rates of inflation the average annual mortgage payment is £4,542 every year – almost the same as in 1990 – while average household income has doubled.
“Our research shows that although borrowing is higher than in the past – UK households overall are in good financial shape,” said Chris Rhodes of Alliance & Leicester.
“Total interest payments consume less than a seventh of household income for those with a mortgage – compared to over a quarter back in 1990.
“Over the past ten years interest rates have remained fairly stable and economists believe there is no real prospect of interest rates reaching 8.5 per cent – the level they would need to reach to cause 1990-level stress,” he added.
© Adfero Ltd