Brits spend less repaying loans

17 March 2006
The Bank of England (BoE) would need to raise the base rate of interest to 8.5 per cent for families to experience the sort of debt trouble of the 1990s, according to Alliance and Leicester.

However, as things stand and with interest rate steady for some time, there is no real prospect of this.

Although the collective debt pile has just passed the £1.2 trillion mark, historically low interest rates means the cost of borrowing has almost halved in relation to income.

Although debt itself has trebled since the 1990s, a household with a mortgage now spends about 13.8 per cent of its income making interest payments, compared with 25.7 per cent at the start of the nineties. The majority of this is still in the form of mortgage payments.

It is the under-30s who are facing the biggest financial difficulties, often living alone and unable to join the property ladder because of rising house prices.

The average person living in rented accommodation owes debts worth about 40 per cent of their earnings, a combination of credit cards and student loans. Half of this group is under 30 years old.

Chris Rhodes at Alliance & Leicester said: "Our research shows that although borrowing is higher than in the past – UK households overall are in good financial shape.

"People are spending a smaller proportion of their incomes on their mortgages. Arrears and repossessions remain at historically low levels."

In March the Bank of England (BoE) voted to keep the base rate of interest at 4.5 per cent for the seventh consecutive month.

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