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Study calls for calm over British debt - Financial news from Quotesure - 16/03/2006


Anxiety over British borrowing maybe misplaced.
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Study calls for calm over British debt

New research suggests that anxiety over British borrowing is somewhat misplaced, with the appetite for accumulating debt falling some way short of the bad times of the early 1990s.

The study by Alliance & Leicester into mortgages and unsecured debt claims that interest rates would have to rise almost two-fold on current levels before the UK returned to the era of repossessions.

In 1990, the base rate averaged 14.6 per cent, while today it stands at 4.5 per cent and it would have to increase to 8.5 per cent before the nation would face a 'debt crunch'.

Similarly, average mortgage rates stand at 5.6 per cent and would need to rise to ten per cent, before a serious threat emerged.

Although household debt and mortgage lending have both more than tripled since 1990, Alliance & Leicester says this must be set in the context of a doubling of household income, with the effect that, relative to income, the cost of borrowing has almost halved.

Average mortgage interest payments in 2005 totalled £4,542 per annum, almost the same as in 1990, but making far less of a dent in household budgets.

The company concludes that 'the UK is not on the verge of debt meltdown', with borrowing remaining at a more than comfortable position compared to historic levels.

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