Despite mortgage debt being more than twice the level of disposable income and total household debt reaching the £1 trillion mark, consumers remain confident about managing debt.

Research conducted for Nationwide Building Society in July, shows that 95% usually have enough money to pay their mortgage each month with just 2% regularly having difficulties.

In terms of other household debt, 74% usually have enough money to make the repayments on their borrowings with 11% regularly having difficulties.

In addition, the research found that 90% of consumers expect their income to either stay the same or improve in 6 months time. In terms of non-mortgage debt, of those who have existing debts, 42% plan to reduce their borrowing compared to 13% of people who plan to increase their borrowing in 6 months time.

consumers remain confident

The research indicates consumers remain confident but cautious about managing debt. Assuming the MPC increase the base rate by 0.25% on Thursday, as is widely expected, rates will have risen by 1.25% since the start of November 2003. As an illustrative example of the impact of this increase, typical mortgage payments will have risen from 25% of take home pay to 29%.

Although interest rates are expected to rise further, the proportion of those experiencing difficulties with meeting debt obligations is unlikely to rise dramatically. A recent survey by the FSA indicated that the base rate would need to reach 6.5% before the number of people who would fall behind with at least one loan would increase significantly.

A key driver behind consumers being able to afford debt repayments is the current and future economic and employment situation. The majority of consumers believe the current economic climate is good and expects this picture to remain the same in 6 months time.

In terms of employment, 71% are positive about the number of jobs available, however this falls to 57% when asked about the situation in 6 months time.

Commenting on the figures Stuart Bernau, Nationwide's executive director, said: “Our research shows consumers remain confident about their ability to manage debt, but are also wary about taking on more unsecured debt in the future."

"Underpinning this confidence is the current economic climate and employment situation. However, the warning voiced by Mervyn King and recent interest rate rises do seem to be causing consumers to think carefully about their borrowing and how they intend to repay debts in the future."

"It seems clear that most people believe they are not over-extending themselves, that they are comfortable dealing with their finances, and that they believe their financial future, in the main, is steady and secure.”

The economic environment:

• Total personal sector debt currently totals £1,002.7bn of which £825.8bn is secured on property.
• Average earnings up 25% since early 1999.
• 28.3m people now in employment, 1.3m up since the start of 1999.
• Typical initial mortgage payments currently 28% of take home pay compared to 39% in the early 1990s.
• Total debt now nearly 2.75 times disposable wages and salaries – up from 2 times at early nineties peak.