It appears that the amount of debt being accumulated in the UK is now worrying the Governor of the Bank of England!
The Governor, Mervyn King has fired a warning that households with considerable debts could face problems with the changes in the economy, especially interest rate rises. Mr King commented that the housing market and consumer spending were still rising, not falling back, following the interest rate rise of 0.25%. He has warned consumers to be aware of the debts they are taking on in this economic climate.
Our View
Everyone knows that generally debt carries interest and when interest rates rise, so do the interest payments. However, the majority of people with considerable debt do not realise just how much interest rate rises will affect their payments.
Our advice is to make sure you can afford your debts if interest rates were 2%, 3% or 4% higher. If you can, then you should have more financial leeway than someone pushed to their maximum on current interest rates.
We believe that interest rates will continue to rise due to the housing market and consumer spending still rising.