Base rates must almost double for the UK to face 1990-style debt stress according to new research from Alliance & Leicester into mortgage and unsecured debt.

The lenders says the research shows the UK is a long way away from returning to the bad old days of the early 1990s – despite rapid growth in the appetite for borrowing.

Household debt has more than tripled from £337 billion at the end of 1990 to £1,160 billion by the end of 2005. Over this period, mortgage borrowing rose threefold to £967 billion, while unsecured borrowing rose fourfold to £135 billion and balances outstanding on credit cards rose sevenfold to £58 billion.

The average UK household with a mortgage now owes £83,722 in total including the mortgage, compared to £31,238 in 1990.

However underlying trends demonstrate that, despite this sharp growth, borrowing remains comfortable compared to historic levels – and that the UK is not on the verge of debt meltdown. For example, average mortgage interest payments in 2005 totalled £4,542 per annum, almost the same as in 1990. Meanwhile, household income has doubled.

The Alliance & Leicester ‘borrowing monitor’ shows that base rates would have to reach 8.5% before the UK returned to the debt crunch of 1990 which led to thousands of homeowners losing their homes. If this happened, average mortgage rates would reach 10% taking average annual mortgage interest payments to £8,200. By contrast, today the average mortgage rate is 5.6%. In 1990 the base rate averaged 14.6%, today it stands at 4.5%.

Key findings:

• Total debt has more than tripled since 1990 – but relative to income the cost of borrowing has almost halved.
• The total cost of debt servicing for households with a mortgage stands at 13.8% of income. This is around half the level it was in 1990 when debt servicing consumed 25.7% of household income for those with a mortgage.
• Mortgage arrears are near to an historic low but unsecured borrowing is showing modest signs of strain.
• The base rate would need to hit 8.5% to raise the debt interest burden for mortgage payers to 1990 levels.

Households with a mortgage can comfortably service this level of debt, says A&L