1. A precursor to recessions, extremely low savings rates
It was in 1989, when the UK savings rate went so low. After, 2 years the UK entered a recession. The consumers pursued to build up their savings after years of over spending and borrowing.
2. Mortgage Equity Withdrawal
Increase in Mortgage Equity Withdrawal financed the tremendous borrowing. Last 2006 MEW rose to £14.6bn or 6.7% of incomes. This MEW often strengthens other debts such as credit card loans. Nevertheless, it pertains that if there were declines on house prices, those who had taken out equity withdrawal would be prone to negative equity.
3. Citizens get sensitive to increasing interest rates
The rising debt levels mean that significant population areas will be quite sensitive to interest rate increase.
4. Inflation is predicted to rise
This is due to several factors such as rising commodity prices. It may require higher interest rates to keep inflation proximate to the targeted 2% of the government. However, even a modest increase in interest rate of 0.5% could result to unaffordable mortgage payments or new homeowners.
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