Personal debt hits 10-year high
The average British family now spends more of its household income on servicing debts than at any time over the past 10 years. Figures published today by the Liberal Democrats show that the average household now spends 9 per cent of its income on interest charges, a fifth more than in 1997.
The figures, based on answers to parliamentary questions tabled by the Liberal Democrats' shadow Chancellor, Vince Cable, reveal that interest costs have risen from 7.5 per cent of household income in 1997 to 9 per cent today.
The figures also reveal that the average family's total personal debt now accounts for 164 per cent of their annual income, the highest figure in the developed world, and the highest figure in the UK's history. In 1997, the figure stood at 105 per cent.
Mr Cable called on Gordon Brown to make tackling debt a key priority of his term as Prime Minister. 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 warning comes amid mounting concern about huge increases in the size of monthly mortgage repayments faced by more than 2 million homeowners.
Figures from Moneyexpert, the personal finance analyst, show 2.3 million mortgages were taken out at a fixed rate of interest in 2004 and 2005, when the cost of borrowing was at rock bottom. The majority of these are due to come to the end of their fixed-rate term at some point this year, at which stage borrowers will automatically move on to lenders' standard variable rate, likely to cost a third more than the deal they were previously on.
Even borrowers who remortgage to a new fixed-rate deal are likely to be substantially worse off, because the best fixed rates available in the mortgage market today are significantly less attractive than what was on offer two to three years ago.
The average fixed rate taken out in 2005 was 5.18 per cent, almost a third cheaper than the average standard variable rate, of 7.5 per cent, charged by lenders today. A borrower with a £150,000 mortgage would face a £207 increase in their monthly repayment by moving to the higher rate.
Moneyexpert said the typical fixed rate now cost around 6.05 per cent, which would still represent a £68 rise in monthly repayments on a £150,000 mortgage.
Borrowers whose fixed-rate terms are due to end later this year could face even more problems because many mortgage lenders are withdrawing their most attractive rates.
Source: theindependent.co.uk
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