Research carried out for the Bank of England shows that British households are still feeling the effects of the recession despite continued low interest rates.
In a study by NMG Consulting, it was discovered that debt levels still concern over half of households in Britain. Over 50% of respondents revealed that they were finding it difficult to keep up with monthly repayments on cheap unsecured loans, personal loans and credit cards.
On the other side of the coin, people looking to take out a new loan are finding it difficult to find a source and people with large mortgages are finding it difficult to find a new mortgage.
Perhaps the most interesting, and most concerning finding in the report is that many people are not taking advantage of the historically low interest rates to pay off their credits cards, personal loans and cheap unsecured loans. Although they are personally worried by their levels of debt, not only are they not taking this opportunity to reduce it before interest rates rise again, but many people are increasingly reliant on the cash made available from credit cards.
Of course, this is a difficult time for the lenders and borrowers alike. Stung by the recession and the credit card, loan and mortgage industry’s part in the financial crisis, money lenders are less willing to hand out cheap unsecured loans. At the same time, they are being encouraged to do just that to ensure a steady supply of ready cash flowing into the economy.
Similarly, debt-stricken households are receiving mixed messages: being told to save, be responsible and live within their means whilst also spending as much as possible to help private sector growth.
The worst situation is for people who have fallen on hard times and need to borrow money to see them through, but are unable to obtain credit from mainstream lenders. Historically low interest rates only work when lenders are willing to lend.