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Debt warning as mortgage rates look set to rise

We're likely to see a 'significant increase' in mortgage rates as British banks try to cope with the higher borrowing costs that they're facing.

The warning comes from the Governor of the Bank of England, who warned that the Eurozone debt crisis is damaging our own economy.

As the Daily Mail reports, our banks currently have over half a trillion pounds tied up in organisations in Europe, while markets' worsening conditions seem to be 'characteristic of a systemic crisis'.

So it looks like we could be facing another credit crunch in the UK - and our own economy could be plunged back into recession*.

With increasing inter-bank lending rates threatening to push up rates on mortgages, a spokesperson for the IVA Advisory Centre commented: "Right now, people across the UK are struggling with increasing costs and wages that aren't keeping up with the rate of inflation, which means falling income levels in real terms.

"People with a mortgage payment to make every month could find the Governor's comments deeply worrying. Today's low mortgage rates have helped a lot of homeowners cope with the economic problems we've faced recently - so the thought of rising rates can be a frightening prospect.

"We'd recommend that anyone with debt worries talks to an expert about their concerns, to find out how they can best prepare themselves for any future shocks to their finances."


* A note about this: the two terms ('credit crunch' and 'recession') are often confused, but 'credit crunch' means it's difficult to borrow money, while 'recession' means the economy has shrunk for two quarters in a row.