It has drawn attention to the fact that any borrowers falling outside the Bank of England’s defined 'danger thresholds' are highly likely to end up falling into arrears.
People who have crossed the 'threshold' are those with debt repayments of more than 55 per cent of their household income, and net worth less than 33 per cent of their income. This means that, for example, anyone with two thirds of their mortgage outstanding and no savings, should consider themselves in jeopardy.
While there are comforting signs of a gradual recovery in the mortgage market, higher-risk borrowers should be aware that tighter credit conditions may re-emerge in the aftershock of the recent financial turmoil.
David Kuo, head of personal finance at Fool.co.uk, says: “The two thresholds provide a handy guide for consumers to see if they are sitting ducks. And by ensuring that we stay comfortably within them, we should be better placed to face unexpected shocks.
“Consumers should draw up a Statement of Affairs immediately to get a useful snapshot of their finances. The snapshot will tell, at a glance, whether they fall into one of the ‘at risk’ categories.
“Failing to draw up a Statement of Affairs in the current difficult financial climate is tantamount to driving a car without shock absorbers. It may get you from A to B, if you’re lucky, but the ride won’t be nearly as comfortable as one that has.”
