Estimated Three Million Face Financial Peril with Rise in Interest Rates
If interest rates begin increasing, an estimated three million borrowers could face financial peril, one economist has warned. Fathom Consulting’s, Danny Gabay, believes those homeowners who are living beyond their means are simply walking a tightrope on a windy day. The moment a slight gust of wind comes in the form of a rise in interest rates, they are going to come falling down.
Gabay has already cited the fact that repayments have been challenging for many. Gabay commented on household finances, saying: "It is an extraordinary position to be in. Fixing government finances is important but is only part of the problem. The other, larger part, is fixing household finances where in fact the crisis began. "It is very politically convenient to believe that the crisis was caused by greedy bankers, but nobody made people take out mortgages of five times their income. "Lots and lots of people borrowed too much." Fathom Consulting has drawn up its own conclusion as to what the low interest rates are enabling banks to do. They believe that the bad loans don’t have to be faced, as long as interest rates remain where they are. Fathom is also of the opinion that the government should create a new bad loan bank to purchase all the infected loans, with the goal of wiping the slate clean and starting over. Gabay commented on a solution to bad loans and the consequences in the short term, saying: "The solution we are suggesting will be very painful in the short term but if we face up to our debts, we can move on. "Too much money has been lent against assets that have fallen in value, but those losses have not yet been fully recognised. "We are being kept alive on a near-zero interest rate drip and we can't move forwards."