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02/11/2017

Over one-third of British adults with a common credit product would struggle to afford 1% interest rate rise – R3

At least a third of British adults with common credit products – including credit cards, mortgages, and Personal Contract Purchase car loans – would find it difficult to repay their debt if interest rates were to rise by one percentage point, according to a survey of over 2,000 British adults by insolvency trade body R3 and ComRes.

The survey found that 46% of adults with payday loans would find it difficult to repay the debt if interest rates rose by one percentage point, as would 43% of adults with bank loans, 39% of adults with an overdraft, 38% of adults with a mortgage, 37% of adults with a Personal Contract Purchase (PCP) car loan, and 35% of adults with outstanding credit card payments.

4% of adults with an overdraft, bank loan, or a PCP car loan say a one percentage point interest rate rise would mean they could not afford to repay the debt at all.

Mark Sands, R3’s personal insolvency committee chair, says: “It’s worrying that a rise to what is still a historically low level of interest rates 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 would kick away a financial crutch for thousands of people.”

The survey also found that 24% of British adults do not have any savings at the moment, while 41% are worried about their current level of debt.

Mark Sands says: “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.

“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 ten 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.”

The survey found that a quarter of adults with bank loans (24%) and PCP car loans (26%) are unsure how they would be affected by an interest rate rise.

Mark Sands says: “When taking on credit, borrowers must plan for how they can repay their debts in different scenarios, including how they will manage if the cost of borrowing rises. If people are struggling to see a way out, they need to speak to a qualified adviser. The sooner they seek help, the more flexible their options are.”

The survey found that:

  • 53% of British adults report having outstanding credit card payments – of these, 55% would find it at least ‘fairly easy’ to afford an interest rate rise of one percentage point, but 35% would find repayments at least ‘fairly difficult’. 3% people) would be unable to afford repayments.
     
  • 35% of British adults report having an overdraft – of these, 44% would find it at least ‘fairly easy’ to afford an interest rate rise of one percentage point, but 39% would find repayments at least ‘fairly difficult’. 4% would be unable to afford repayments.
     
  • 32% of British adults report having a mortgage – of these, 47% would find it at least ‘fairly easy’ to afford an interest rate rise of one percentage point, but 38% would find repayments at least ‘fairly difficult’. 2% would be unable to afford repayments.
     
  • 23% of British adults report having a bank loan – of these, 33% would find it at least ‘fairly easy’ to afford an interest rate rise of one percentage point, but 43% would find repayments at least ‘fairly difficult’. 4% would be unable to afford repayments.
     
  • 20% of British adults report having a PCP car loan – of these, 37% would find it at least ‘fairly easy’ to afford an interest rate rise of one percentage point, but 37% would find repayments at least ‘fairly difficult’. 4% would be unable to afford repayments.
     
  • 14% of British adults report having a payday loan – of these, 20% would find it at least ‘fairly easy’ to afford an interest rate rise of one percentage point, but 46% would find repayments at least ‘fairly difficult’. 11% would be unable to afford repayments.
     
  • ComRes interviewed 2,022 British adults online between the 14th and 15th August 2017. Data were weighted to be representative of all British adults by age, gender, region and socio-economic grade. ComRes is a member of the British Polling Council and abides by its rules.

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see www.r3.org.uk for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.