Interest rate hike could push many into debt problems

18/12/2009

A report from the Bank of England has warned that many British families could fall into debt problems'>debt problems when interest rates start to rise.

The base rate currently stands at a record low of 0.5 per cent. But the Bank warns that the ratio of income paid on interest would be three quarters higher if the rate were to stand at five per cent.

This, they say would increase the pressure on UK families who are already struggling to make ends meet.

In the five years leading up to the recession, personal debt situation? Take our Debt Calculator test today!'>personal debts rose significantly - reaching their highest point since the early nineties.

Indeed, in the first quarter of 2008, official figures show that the household savings ratio fell into negative territory for the first time ever. This that more was borrowed during this period than was saved across the whole country.

Kevin Still, director of EuroDebt, believes that "very low interest rates on mortgage payments have deferred serious debt problems for many households and that this will become an increasing challenge for many during the course of 2010.

As a result, the firm is expecting the number of IVAs, Bankruptcies and Debt Management Plan'>Debt Management Plans [DMPs] to continue to rise in the coming year.

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