Millions of UK families could be spending over half their disposable income on debt repayments by 2018

In the UK, up to 2 million families could be spending over half their disposable income on debt repayments by 2018, think tank, Resolution Foundation said.

The think-tank conducted a study, that used the latest five-year growth projections from the Office for Budget Responsibility, to show that the rise in the number of households left in 'debt peril' as a result of an increase in interest rates and household income.

The worst-case scenario showed that an increase in interest-rates to 5 per cent with weak corresponding wage inflation, could see as many as 2 million UK families use over half of their disposable income to repay debts.

Interest-rates are expected to increase in 2015, though a recent drop in unemployment had led to speculation that the decision to increased the base rate may be taken by the Bank of England in 2014.

Even a lower than expected increase of 3 per cent, coupled with good household income growth could end up leaving 1.1 million households in debt peril – a substantial increase from the 870,000 families facing the same scenario in 2007.

The new Resolution Foundation analysis follows a report from the Bank of England based on a survey by NMG Consulting which warned that homeowners with heavy debts could become overburdened if interest rates started to increase before household incomes picked up.

According to  the Resolution Foundation's Gavin Kelly there was huge uncertainty about income growth and interest rates but under almost any plausible scenario there would be a big spike in the next Parliament.

He added, the issue could be talked about as much as the current discussion on wages or energy bills, but as yet there was little sign of the political or financial establishment giving this the priority it deserved.

According to Gillian Guy, chief executive of Citizens Advice, high levels of household debt were a ''financial ticking timebomb''.

She added, the increasing cost of energy, food and travel had been absorbing any spare income people might have, which meant that in some cases there was little or nothing left to cope with larger mortgage repayments.