Loans -
Uk debt mountain soars to record high - 19/03/2008
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Uk households now owe a combined total of £1.4 trillion in loans, according to figures released by Experian, the credit reference agency.
The figures for 2007 show that despite a rise in interest rates and the increased fears of recession, credit card borrowing rose by 1.25 per cent last year. Brits now owe a total of £225 billion on cards and our obssesion with credit is the highest in Europe. Mortgage borrowing also rose by 10.8 per cent, leaving people on average spending 10 per cent of their income on interest payments.
The figures of debt are forcased to rise because loan rates have risen and an extra 1.4 million people will have to find a mortgage this year at a higher rate, due to their fixed rate deals coming to a end. In 1998, people only spent 9 per cent of their annual income on paying interest but the rates of borrowing were also much higher at 7.5 per cent. Today, even with the Central Bank cuts, the rate of borrowing stands at a fairly modest 5.25 per cent base rate.
George Buckley, UK economist for Deutsche Bank, said: "The higher the debt levels, the more sensitive consumers are to changes in interest rates."
There is hope however, as many homeowners have built up a cushion of equity in their property, which can be bought into if things get tough. The total equity in property still dwarfs that of mortgage borrowing, £2.8 trillion to the £1.2 tillion in mortgages.
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