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BankruptcyNews
Junior Member
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 Posted - 26 June 2007 : 10:03:46
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Interest payments on household debt hit a ten year high
Interest payments on household debt have hit a ten year high in relation to income with annual repayments expected to top £100 billion for the first time.
The annual share of income devoted to mortgage, credit card and loan repayments has risen from 7.5per cent in 1997 to 9per cent today.
While personal debt as a proportion of average household income has soared from 105 per cent to a record 164per cent over the same period.
These debt levels are the highest figure in the developed world, which will fuel concerns that Britain's economy is being propped up by a fragile debt bubble.
A spending and credit binge, led by a huge increase in the size of mortgages, have driven the nation's personal debt to a staggering £1.325 trillion.
Around £1.112 trillion of this relates to home loans and the remaining £213 billion to unsecured debt.
Recent interest rate rises mean the annual bills associated with repayments of these huge sums will reach £101.5 billion this year.
The figures go a long way to explain the surge in bankruptcy and house repossession seen over the past six months.
While the screw will be turned further with a further quarter point rise in the base rate - taking it up to 5.75 per cent - predicted in the first week of July.
A further rise to 6 per cent that would cripple the finances of thousands of people who are struggling with mortgage repayments is expected by many City analysts.
The Liberal-Democrates collated the figures on debt repayments in relation to income.
The party's Treasury spokesman, Dr Vince Cable, said Gordon Brown should put tackling the personal debt crisis at the top of his agenda on entering Number 10.
He said: "Mr Brown will move house this week while thousands of homeowners face severe financial difficulties because of the expected interest rate rises this summer and later this year."
The figures showing debt interest repayments hitting £101.5 billion this year come from accountants Grant Thornton.
It believes that £72.8 billion will be linked to mortgage repayments and the remaining £28.7billion to unsecured borrowing such as credit cards, loans and overdrafts.
Grant Thornton suggests the £101.5 billion equates to £1 in every £8 spent by householders on all goods and services this year.
Given that the country has some 25 million households, the figure amounts to an an average of £4,000 each.
However, Grant Thornton says the greatest debt levels and repayments are carried by a third of households where the average age is 30-45.
This group is most likely to be saddled with a big mortgage and big credit card balances.
The base rate has risen from 4.5per cent to 5.5per cent in the last year, bringing big increases in interest charges on standard variable rate mortgages.
This has added around £80 a month to repayments on a 125 year repayment mortgage, taking the figure to around £957 a month.
However, there is a group of some 2.3 million housebuyers who are predicted to suffer a particularly alarming mortgage shock.
This is the group that took out low-cost fixed rate mortgages which are due to come to an end over the next 18 months.
They will have to switch to variable rates or pay to take their mortgage elsewhere, which will land them with a huge increase in payments.
Senior tax manager at Grant Thornton, Maurice Fitzpatrick, warned of real stress for those families and individuals, many of them first-time buyers, who are carrying the biggest debts.
"Those households will view the first Thursday of each month, which is when the Bank of England announces interest rate changes, with dread," he said.
Source: dailymail.co.uk
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Interest payments on household debt hit 10yr high
