Pre-crisis debt playing key role in current finances

British people's current finances are still being heavily impacted by their spending decisions before the global downturn of 2007/08, according to the Resolution Foundation.

Matthew Whittaker, senior economist at the organisation, told bbc.co.uk that many people could be heading for so-called debt peril, which is when a household spends more than half of its income on debt repayments.

“Even if we take a somewhat rosy view of how the economy will develop over the next few years the number of households severely exposed to debt looks as though it will double. But the levels of debt built up by families in the pre-crisis years are such that even relatively modest changes in incomes and borrowing cost assumptions produce significantly worse outcomes.”

In 2007, the number of people in debt peril was 870,000, but the Resolution Foundation predicts that 1.1 million will be in this situation even if interest rates do not rise above three per cent by 2018. The base rate has been at the historic low of 0.5 per cent since 2009 and is expected to rise once the economy has recovered sufficiently, causing huge changes, particularly to mortgage repayments.

In a press release published on resolutionfoundation.org, the chief executive of the think tank, Gavin Kelly, suggested the government is not making this issue enough of a priority, as it is set to become a major problem in the coming years.