A quarter of adults in Yorkshire would struggle to repay their debts if interest rates were to rise by just 1%, a survey suggests.
The findings of the survey – which looked at how consumers would cope with servicing common credit products such as mortgages, car loans and bank loans in the event of a 1% rise in – were described as “worrying” by insolvency trade body R3.
Nationally, the research found that at least a third of British adults owning each product would find it difficult to repay the debt – or would no longer be able to afford to repay the debt on a bank loan, an overdraft (39%), a Personal Contract Purchase (PCP) car loan or outstanding credit card payments.
The survey suggested that 6% of adults in Yorkshire with payday loans would find it difficult or no longer be able to afford to repay the debt if interest rates rose by 1% – as would 58% of adults in the region with bank loans, 42% with an overdraft, 33% with a mortgage, 35% with a PCP car loan and 28% with outstanding credit card payments.
Eleanor Temple, chair of R3 in Yorkshire, said: “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 have no savings at all while 43% are worried about their current level of debt.
Ms Temple said: “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 10 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.”