UK households need to find an extra £65bn to manage their debt as interest costs are likely to double by 2024.
Total debt-servicing costs will reach nearly 10% of disposable income, according to Fitch Ratings' Economics Dashboard report.
Total debt-servicing costs, which include regular repayments and interest payments, are set to jump by £65bn to £176bn next year as the Bank of England raises rates to tame inflation, making borrowing more expensive.
The delayed impact of rising policy and market interest rates means that by 2024, households will need to spend around 6.5% of their income just on debt interest payments, up from 3.4% currently. Adding in regular repayments takes the total to 9.7% of income by the second half of 2024.
Despite the increase and further financial squeeze, households will not see interest payments as a share of income return to their previous heights of around 8.5% in 2008 and almost 11% in the early 1990s, mostly because the Bank Rate is likely to peak at a lower level than in the past.
With families facing rising energy and food bills and seeing their incomes fall in real terms, the sharp increase in debt-servicing costs that Fitch estimates will add to the mounting pressure on household finances.
“Even the greater prevalence of fixed-rate mortgages will only be a partial salve given that nearly 2 million fixed-rate mortgages will still expire in 2023, more than in recent years. Most of these will be re-fixed and at significantly higher rates,” said Jessica Hinds, director of economics at Fitch Ratings.
The headline rate of annual inflation as measured by the consumer prices index fell back to 10.7% in November from a 41-year high of 11.1% a month earlier.
Official figures for December, due on Wednesday, are expected to show a further modest decrease to 10.6%. That would still be well above the Bank of England’s 2% target.