A new report from independent think-tank the Resolution Foundation has urged the government to make bold policy decisions to help tackle the issue of …
A new report from independent think-tank the Resolution Foundation has urged the government to make bold policy decisions to help tackle the issue of indebted households across the UK.
According to the organisation's findings, wide-ranging support is now needed to help to address the issue of personal debt in the UK, with the number of highly-geared households – those spending more than one-third of their post-tax income on servicing debt – forecast to double to more than 2.3 million people by 2018.
Matthew Whittaker, chief economist at the Resolution Foundation and co-author of the report, said: "It would be a serious mistake to think that the legacy of problem debt built up in the pre-crisis years will simply evaporate with a return to economic growth.
"The magnitude of the stock of debt is simply too large given expectations that income growth will be gradual at best. And, while the mortgage market largely remains competitive, tighter lending criteria means that some highly-stretched borrowers face limited choices.
"There is a pressing need for regulation to respond to this new context."
As such, the organisation has put together a list of recommendations for Westminster that could significantly benefit indebted households up and down the country in the years to come.
One of the most important aspects of aiding individuals already facing considerable debts is for the Bank of England to "tread carefully" regarding interest rate increases until concrete evidence of rising incomes across the UK is seen.
As such, the Bank is being encouraged to work in partnership with the Office for National Statistics on the creation of a new reliable measure for household incomes.
Furthermore, the think-tank has stated action now needs to be taken to support borrowers in preparing for future rising costs, as the current record low for the base rate will inevitably come to an end at some point and individuals facing large debts need to be prepared for this.
Indeed, the Financial Conduct Authority (FCA) should now require all lenders to get in touch with the estimated two million mortgage borrowers that are deemed to be most vulnerable to a future rise in interest rates, encouraging them to undertake a "financial MOT".
The FCA also recommends lenders be ordered to justify any increase in their standard variable rate for borrowers to prevent them from exploiting a potential monopoly on individuals trapped in a situation negative equity.
Providing a new scheme to help those facing the prospect of repossession was also mooted as being of considerable benefit for those whose debts could lead them to losing their home, with banks and lenders being urged to take a lead role on this issue by offering potential shared-ownership solutions or through completing assisted voluntary sales.
Finally, the report stated those homeowners with high levels of debt at present should have greater access to free advice on the issue.
Gavin Kelly, chief executive of the Resolution Foundation, concluded: "Successfully managing the adjustment to a world of more normal interest rates will be one of the key tests for the next government."
Posted by Joe White