UK debt crisis could affect millions
30/12/2013
The number of people using more than half of their disposable income on debt repayments could almost double from 600,000 to 1.1 million by 2018 if interest rates rise to 3% according to the Resolution Foundation.
The Resolution Foundation used the latest 5-year growth projections from the Office for Budget Responsibility to make these predictions. Furthermore, the Resolution Foundation further claimed that this could rise to 2 million households if these levels rise to as much as 5%, which would be the worst plausible scenario predicted.
"Even if we take a somewhat rosy view of how the economy will develop over the next few years the number of households severely exposed to debt looks as though it will double," said Matthew Whittaker, the senior economist at the Resolution Foundation.
"But the levels of debt built up by families in the pre-crisis years are such that even relatively modest changes in incomes and borrowing cost assumptions produce significantly worse outcomes."
These predictions include all debt, such as credit cards and personal loans. However, mortgages make up the largest source of UK household debt.
Interest rates currently remain at a record low of 0.5%, which the Bank of England (BofE) set in March 2009, but it remains unseen how long these levels will remain. The BofE’s current policy states that interest rates will not be increased until unemployment drops below 7%. However, UK unemployment fell to 7.4% this month, the lowest levels since 2009, outlining the possibility that the BofE may increase interest rates in the near future if the trend of falling unemployment rates continues.
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