The UK’s economy may have recently been boosted by a 0.6% growth in GDP, but for many households across the UK it’s business as usual when it comes to reining in their finances.
The latest figures from Aviva’s Family Finances report reveal just why consumers have a right to be cautious about their financial situation, despite the recent upturn in the economy.
Figures from the report show that the average household owes £12,834, up from the figure of £9,000 recorded a year ago, and the highest sum recorded by the report since January 2011.
Worse still is the fact that the squeeze on family finances is so great that less than half (45%) of families are able to meet their monthly debt repayments, down from the figure of 57% recorded a year ago.
While the fact that household income has increased by 5% across the year to £2,108 will provide some respite for families in the UK, plummeting savings rates, which are said to have been exacerbated by the Funding for Lending scheme, mean that households are likely to get a smaller return on their savings.
So it seems that consumers in the UK are not out of the woods yet when it comes to getting their finances back on track, with rising inflation and the rising costs of living playing havoc with our ability to balance the books. Here are two of the likely financial pressures that UK households are still set to face.
A rise in mortgage interest rates could lead to a ‘dangerous debt levels’
A recent study published by the Resolution Foundation think tank looked at the impact that an expected 1.9% rise in mortgage interest rates, in four years time, could have on UK households.
It forecasted that a staggering 800,000 families would be forced to allocate half of their income to debt repayments by 2017, if the above scenario came to fruition.
If interest rates exceed expectations and increase to reach 3.9% by 2017, a further 1.2 million households would have to face directing half of their income towards debt repayments.
Even in the “best case scenario”, where interest rates climb to the expected level but income growth is strong, 700,000 families would still have to plough 50% of the income into debt repayments.
Resolution Foundation senior economist Matthew Whittaker said: “There is now the real prospect that a large number of households already burdened with debt could collapse under its weight if economic conditions tighten.
“Even if interest rates stay in line with expectations, we are likely to see a rise in the number of families struggling with heavy levels of repayment over the coming years.”
Sky-high cost of getting from A to B
Figures from the AA show that rising wholesale oil prices are set to push up the cost of filling up our tanks. This would mean that petrol prices could leap by a figure of 5p a litre, putting even more financial strain on those who are planning to hit the road frequently this summer.
AA spokesman Luke Bosdet said: “There is the threat of a 5p price hike on petrol over the next few weeks. Just when the summer was looking to be perfect motorists are hit by this, casting a black cloud over what was promising to be a glorious summer.
“Diesel is looking to behave itself, and although it is heading upwards it is less than petrol.”
RMT boss Bob Crow has also recently accused the rail industry of “blatant rail racketeering”, after it revealed that the cost of a walk-on return from London to Manchester totalled £308, while a flight from London to New York came in at a cheaper £298.
According to the RMT walk-on fares had climbed by an average of 23.1%, while long-distance services had increased by 31.5% in real-terms.