UK Households Face GBP65bn Rise in Debt-Servicing Costs

UK Households Face GBP65bn Rise in Debt-Servicing Costs

United Kingdom (UK) households face spending far more on servicing their debt, as tighter monetary policy is likely to cause interest costs to double by 2024. This will push up total debt-servicing costs, which include regular repayments and interest payments, by GBP65 billion to GBP176 billion in 2024, Fitch Ratings said in a note.

UK Total debt-servicing costs will reach nearly 10% of disposable income, says Fitch Ratings in its latest Economics Dashboard.

Households will not see interest payments as a share of income return to their previous heights of around 8.5% in 2008 and almost 11% in the early 1990s, mostly because Bank Rate is likely to peak at a lower level than in the past.

But the shift to higher interest rates will come as a shock to UK households, which have become accustomed to cheap borrowing over the past decade. The increase in the debt-service burden will be faster than in the mid-2000s, reflecting the faster pace of interest rate increases.

“Even the greater prevalence of fixed-rate mortgages will only be a partial salve given that nearly two million fixed-rate mortgages will still expire in 2023, more than in recent years. Most of these will be re-fixed and at significantly higher rates,” said Jessica Hinds, Director, Economics at Fitch Ratings.

Fitch calculates that the lagged impact of rising policy and market interest rates means that by 2024, households will need to spend around 6.5% of their income just on debt interest payments, up from 3.4% currently. Adding in regular repayments takes the total to 9.7% of income by second half of 2024.

With households facing rising energy and food bills and seeing their incomes fall in real terms, the sharp increase in debt-servicing costs that Fitch expects will add to the mounting pressure on their finances. #UK Households Face GBP65bn Rise in Debt-Servicing Costs

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