The number of people using more than half their disposable income on debt repayments could rise from 600,000 to two million by 2018, a think tank has reported.
According to the Resolution Foundation, 1.12 million households would face “perilous levels of debt” in an “optimistic” scenario where rates rise to 3 per cent and household income growth is strong.
If interest rates rise to 5 per cent and growth continues to be slow, around two million households would face overwhelming levels of debt.
Based on figures from the Office for Budget Responsibility, the think tank’s forecast warns:
“Far from being resolved, Britain’s personal debt problem remains a real cause for concern. A significant increase in the number of households spending more than one-half of their income on debt repayments would have profound implications for borrowers, the financial sector and the ability of consumers to contribute to economic recovery.”
Matthew Whitaker, senior economist at the Resolution Foundation said:
“The point at which interest rates start to rise is still likely to be some way off. But we can’t afford to wait until monetary tightening becomes an inevitable prospect before we attempt to deal with the debt overhang that remains in place.
“Rather than waiting for a repayment crisis to strike, policy makers and lender should seriously consider acting now while there’s still the chance to help people reduce their exposure to debt.”
