At least a quarter (28 per cent) of adults in Yorkshire who have mortgages, bank loans and car loans could find it difficult to repay their debt if interest rates rise by just one percentage point, according to a survey of over 2,000 British adults by insolvency trade body R3 and ComRes.
The research found that at least a third of British adults with these loans would find it difficult, or no longer be able to afford to repay the debt, on a bank loan (43 per cent), an overdraft (39 per cent), a Personal Contract Purchase (PCP) car loan (37 per cent), or outstanding credit card payments (35 per cent).
Figures for Yorkshire and the Humber suggest that 62 per cent 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 per cent, as would 58 per cent of adults in the region with bank loans; 42 per cent with an overdraft; 33 per cent with a mortgage; 35 per cent with a Personal Contract Purchase (PCP) car loan; and 28 per cent with outstanding credit card payments.
Across Britain, 4 per cent of adults with an overdraft, bank loan, or a PCP car loan say a one per cent 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, said: “Even following the recent rise in the base rate from 0.25 to 0.5 per cent, 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 per cent of adults in Yorkshire do not have any savings at all at the moment, while 43 per cent 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.”