Recent research has shown that banks have increasing worries about home owner spending.
Two taxpayer banks have contacted 30,000 high-risk home owners in regards to their spending habits. These conversations involved banks warning customers to spend less on non-essentials such as TV suppliers like SKY and mobile phone contracts.
Borrowers may find themselves in financial difficulty
These warnings have stemmed from the state-owned bank charged with regaining the Government’s £48 billion investment into Northern Rock and Bradford & Bingley, the two banks that were nationalised during the 2010 banking crisis.
UK Asset Resolution (UKAR) has identified around 30,000 borrowers who could find themselves in financial difficulty when interest rates rise from the current historic low of 0.5 per cent.
Alliance & Leicester’s, AKAR chief executive and former director, Richard Banks said: “Some people won’t cope when interest rates rise, but for others there are remedies,”
“They need to think about what is their most important debt. It is not their credit card or renewing their Sky subscription, or going out for the latest mobile technology. It is their mortgage.
“We want customers to look at their finances and change their behaviour.”
Paying off debt is a priority
It is advised, while interest rates are currently low, that customers make paying off any debts a priority, specifically credit card debts, where interest rates can often exceed 20%.
Being rid of debt also helps to decrease pressure on mortgage repayments and helps to achieve a better cash flow in the short term.
It is estimated that when interest rates rise again, due to these warnings, families will be in a stronger financial position.
AA Financial Services has demonstrated a positive indication of how households are reacting to such warnings. The company found that, for example, potential customers are less likely to purchase a new car and are more likely to stick with their current cars for longer in order to save money.
Director of AA Financial Services, Mark Higgins said: “Seeing a shiny 61-plate car on the drive is a dream for most families when they have more pressing concerns, so they are hanging on to their cars a bit longer”.