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Interest rate rise could hit vulnerable


A small increase in interest rates could leave over a million households facing debt problems, according to a report by the Resolution Foundation.

The Resolution Foundation, who campaign on behalf of those on low and middle incomes in order to improve living standards found that around 600,000 households in the UK are already facing ‘debt peril’. However, this could increase to 1.1 million in the event of a ‘relatively benign’ rise in interest rates.

‘Debt peril’ means that more than half of a families households post-tax income is spent on repaying debts, such as mortgages, credit cards and loans.

The report also found that the number of households spending more than a third of their income on mortgage repayments alone could rise from 1.1 million to 2.3 million by 2018, meaning one in four households with a mortgage would be in this situation.

Resist increasing interest rates

The report claimed that the government has failed in its efforts to deal with a “debt overhang”, meaning the economy as a whole could be susceptible to any interest rate rises. These claims are also backed up by findings from the Money Advice Service, who said that 8.8 million adults in the UK have too much debt.

The Resolution Foundation said that because so many households are struggling with debt, the Bank of England should resist the temptation of increasing interest rates in the near future.

So far, the Bank have opted to keep interest rates at the benchmark low of 0.5%. However, some business leaders have urged them to reconsider this position.

The report also said that households should be given further protection, by being allowed to lock themselves into low mortgage rates for a fixed period of time. They also said that an advice body should be set up for those who have either had their home repossessed, or have been forced to sell it to pay off debts.

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