Average Household debt continues to rise

4th July 2007

Figures released yesterday show that households are spending more money on debt repayments than ever before. 

Although average income has increased over the past 10 years, it has failed to keep up with soaring levels of debt. This has been made worse by 4 rises in interest rates since August 2006.

According to new government figures, householders are using 9% of their income to pay interest on loans and mortgages.   This figure is up from 7.5% ten years ago.

According to fresh research by Ernst and Young Accountants, families now have less money to spend than at any time in the last 4 years because of increased debts, energy costs and taxes.  After paying essential living costs, the average family now has £838 compared to £899 fours years ago.

With further interest rate rises on the way, up to a reported 5.75%, economists are warning the situation can only get worse.  If this happens a person with a £100k mortgage will have to pay £7,750 a year just to pay interest charges.  This compares to £5500 in 2003.

Around two million people took advantage of fixed rate mortgages two years ago when interest rates were very low at 5.18%.  They are likely to be hit hard when their mortgages come up for renewal.

There are signs credit card borrowing has fallen in recent months – a welcome sign.  However, it appears that most of this is down to people moving their debts to their mortgages.  This is a potentially dangerous move as they could lose their house if unable to keep up repayments.

An MRA spokesperson said: “People often don’t realise the level of risk they are taking on when moving unsecured credit card debt to secured loans. Because Debt Management is not legally binding no property is at risk.”  

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