Interest rate rises hit struggling borrowers

The four interest rate rises that have been applied to the base rate by the Bank of England in the past year have started to take their toll on struggling borrowers.

This is being reflected in the level of repayments that are now being missed by borrowers that are struggling to stay afloat financially.

Interest rates have risen from 4.5 percent last August to 5.5 percent by this May after a series of four 0.25 percent interest rate rises were applied by the Bank of England.

According to recent reports over 7700 loan repayments are being missed each day by UK borrowers. Over the past six months alone the interest rate has risen twice, and in total around 1.4 million repayments have been missed on loans over this period.

In 2006 around 2 percent of borrowers missed loan payments in the first six months of the year, and this has now risen to 3 percent in the first six months of 2007. Many are worried that the next interest rate rise, expected in July, could make matters even worse.

One MoneyExpert official stated: 'This is yet another warning of real financial distress and a sign that finances are being stretched to the limit by recent interest rate rises. The concern has to be that people are missing repayments on unsecured loans because they believe there's not as much at stake as missing a mortgage repayment.'

He added: 'Burying your head in the sand is not the way to deal with financial problems.'

He also warned that although missing repayments on unsecured finance would not mean risking the home, as it would with a secured loan, it would mean adversely affecting consumers' credit ratings, which could have severe financial implications in the future.

Tom Smith
30th June 2007