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16 March 2006
Base rates would have to almost double for consumers to suffer the debt-stress of the early 1990's, it has been claimed.
New research from Alliance and Leicester suggests that despite the rapid growth of mortgage borrowing and household debt, borrowing remains comfortable and consumers are more able to afford repayments.
While total debt has more than tripled since 1990, according to research, the cost of borrowing has almost halved relative to income, with debt servicing for households with a mortgage standing at 13.8 per cent of income today, compared to 25.7 per cent in 1990.
The base rate, currently at 4.5 per cent, would need to hit 8.5 per cent for the debt interest burden to reach 1990 levels, say the company.
"Our research shows that although borrowing is higher than in the past – UK households overall are in good financial shape. Total interest payments consume less than a seventh of household income for those with a mortgage – compared to over a quarter back in 1990," said managing director of Alliance and Leicester retail banking, Chris Rhodes.
Personal debt now stands at £1.2 trillion in the UK, according to analysts Datamonitor, an increase of 20 per cent from July 2004.
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