Borrowers in the UK are paying less interest on their debt than at any point in the last decade despite record levels of lending by banks and building societies, analysis by The Money Charity has revealed.
Based on the latest figures from the Bank of England, households would repay an average of £2,218 in interest over 12 months on mortgage, credit card, and other consumer borrowing – the lowest since December 2003.
The total interest paid by UK borrowers over a year would be £58.6bn – the last time this was so low was February 2004. Since then outstanding lending has increased by over 50%, but low interest rates mean the cost of borrowing is cheaper than it has been for years.
Mortgage-holders are paying less interest than at any point since April 2004, even though levels of outstanding mortgage debt have jumped by 58% since then. Credit card interest payments are the lowest since December 2009, while interest on other consumer credit is at a record low.
Mortgage interest rates are at their lowest since records began in 1998, credit card rates are lower than at any point since March 2007, while the last time other consumer borrowing attracted lower interest rates was December 2010.
Michelle Highman, chief executive of The Money Charity, said: “This month’s debt statistics paints a particularly perilous picture of the UK. Despite outstanding debt having increased by over 50% in the last 10 years the amount we are paying in interest hasn’t risen. Despite this, many families in the UK are only just managing to make ends meet, indicating that any rate increase could tip them over the edge.
“It’s obviously very easy in a time of record low interest rates to be lulled in to a false sense of security that you can afford to take on more debt. But as rises in interest rates seem increasingly likely, it’s crucial when taking on debt that you think through, not just whether you can afford the repayments now, but will you be able to do so in the future. Particularly for mortgages, even a small rate increase can have a significant impact on the numbers involved and on your ability to repay.”
