Member Article

Research suggests that at least 1/4 of adults in Yorkshire with a common credit product could struggle to afford 1% interest rate rise

Research suggests that at least one-quarter (28%) of adults in Yorkshire with common credit products – including mortgages, bank loans and Personal Contract Purchase car loans – could find it difficult to repay their debt if interest rates were to rise by one percentage point, according to a survey of over 2,000 British adults by insolvency trade body R3 and ComRes.

Overall, the research found that at least a third of British adults owning each product would find it difficult, or no longer be able to afford to repay the debt on a bank loan (43%), an overdraft (39%), a Personal Contract Purchase (PCP) car loan (37%), or outstanding credit card payments (35%),

Indicative figures for Yorkshire and the Humber suggest that 62% of adults in the region with payday loans would find it difficult or no longer be able to afford to repay the debt if interest rates rose by one percentage point, as would 58% of adults in the region with bank loans; 42% with an overdraft; 33% with a mortgage; 35% with a Personal Contract Purchase (PCP) car loan; and 28% with outstanding credit card payments.

Across Britain, 4% of adults with an overdraft, bank loan, or a PCP car loan say a one percentage point interest rate rise would mean they could not afford to repay the debt at all.

Eleanor Temple, chair of R3 in Yorkshire and a barrister at Kings Chambers in Leeds, says: “Even following the recent rise in the base rate from 0.25% to 0.5%, interest rates are still near historic lows. It’s worrying that our research found that even a small increase in the rate they pay on credit would cause problems for so many. Vulnerability to a financial shock like an interest rate rise is widespread; people just don’t have much financial wriggle room.

“Credit is no longer limited to luxuries but can often be the only way people can afford to pay for a place to live, a car to get to work in, or even to pay for basics, like food or energy bills. An interest rate rise could bring thousands of people a step closer to the edge.”

The survey also found that 23% of adults in Yorkshire do not have any savings at all at the moment, while 43% are worried about their current level of debt.

Ms Temple continues: “When credit is as cheap as it is now, it masks the financial problems that people are having and stores problems up for later. Compounding the problem, low interest rates encourage people to take on more debt than they otherwise would, which means the delayed hit to finances is worse than it could have been when the cost of debt increases.

“The recent rise in the Bank of England’s base rate should act as a warning of what may be to come. With interest rates so low for so long, it can be easy for credit to be taken for granted. The idea of interest rates going up is an alien one to anyone has only taken on credit in the last ten years – they will never have experienced a rate rise at all. It’s notable that quite a few people are unsure what impact an interest rate rise will have on the cost of their debt.”

Moreover, a quarter (24%) of British adults with bank loans are unsure how they would be affected by an interest rate rise. This is indicative of a similar proportion of adults in Yorkshire and the Humber with bank loans (22%) who say the same.

“When taking on credit, borrowers must plan for how they can repay their debts in different scenarios, including how they will manage if the cost of borrowing rises. If people are struggling to see a way out, they need to speak to a qualified adviser. The sooner they seek help, the more flexible their options are,” concludes Ms Temple.

This was posted in Bdaily's Members' News section by Emma Kilmurray .