02 August 2023 , 20:20
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Millions of hard-up households are thought to be sitting on a debt time bomb with an average of £2,500 in unsecured loans.
In a bid to tame inflation, the Bank of England is today expected to hike interest rates from 5% to 5.25%, a 15-year high. But the Joseph Rowntree Foundation said the focus on rate rises for mortgage borrowers has ignored the impact on those with unsecured debt.
Its analysis found that, as of May, 5.7 million low- income households owed £14.2billion in personal loans, credit cards, payday loans, and overdrafts. A fifth of these have to take on debt just to pay their housing and energy bills. The JRF said analysis showed there was a debt “time bomb” facing millions of poorer families.
Millions are feared to be on a debt time bomb (Getty Images/iStockphoto)Alfie Stirling, the JRF’s chief economist, said: “We are at risk of sleepwalking into a second wave of avoidable crisis, leaving more families unable to pay their bills for longer. Family finances are now in peril due to the rising cost of money. What respite might be gained from energy and fuel prices stabilising will be lost through rising costs for credit cards, overdrafts and mortgages.”
The TUC has called on the Bank to halt rate rises. Paul Nowak, general secretary, said: “With the country teetering on the brink of recession, the last thing we need is another hike.” The Bank of England is using rising borrowing costs to try to cool inflation, which remains nearly four times its 2% target.
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Thomas Lawson, of the Turn2us charity, said: “Rising interest rates will bring yet more financial insecurity. Turmoil in the mortgage market is pulling thousands of mortgage holders into poverty. It impacts renters, as buy-to-let landlords drive up rents to cover costs or sell their properties and leave tenants to face an unaffordable rental market.”
Mortgage brokers say today’s expected 0.25% rate rise has already been priced into fixed rate mortgages. Lewis Shaw, owner of Mansfield-based Shaw Financial Services told Newspage, said: “Regardless of what the Bank of England does, there will be no movement in fixed rate mortgage pricing because this has already been baked in.”