UK interest rates would have to roughly double for the country's personal debt levels to cause an early 1990s-style financial crisis, says lender Alliance & Leicester.
Figures it has published suggest household debt soared to almost £1.2trn by the end of 2005 from £337bn in 1990.
Mortgage borrowing has increased to £967bn, and unsecured borrowing has hit £135bn – not including credit card spend.
However, over the period average mortgage interest payments have hardly changed – averaging about £4,500 annually - while household income has doubled.
It would therefore require an increase in the base rate to about 8.5%, taking mortgage rates to 10%, before a credit-crunch of the type that took place in 1990s were to occur again.
In that year, A&L’s figures suggest, about a quarter of average household income was swallowed by mortgage interest payments alone, or roughly twice the amount used to buy food.
At the end of 2005, the figures suggest mortgage interest payments took up only about 10% of average household income.
Additionally, the average mortgage of £83,722 represents a multiple below 2x of average household income for those with mortgages.
Rising house prices since 1995 mean mortgages as a percentage of the value of homes have fallen to 41% from 58%, while the average new mortgage is 64% of the value of a home today against 75% then.
Mortgage arrears, as defined by those in arrears by between 3-6 months, is down to about 0.5% from 1.8% in 1994.
Repossessions are down 85% from the peak of 1-in-860 mortgaged homes in 1990.
A greater strain is seen in the area of unsecured lending, with credit card and other such debt up by a third in the past five years.
Defaults have risen from 1.70% to 2.75% of outstanding balances, A&L cites Bank of England data, while the number of personal bankruptcies has doubled since 2003.
The overall benign situation, as seen by A&L, is being propped up by continuing low interest rates and high levels of employment, the lender adds.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Jonathan Boyd on 020 7484 9769 or email [email protected].IFAonline
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