Debt crisis? What debt crisis? Governor moves to soothe worries

The Bank of England sought to play down fears of an imminent property crash, saying the impact of rising interest rates would be much smaller than a decade ago.

Mervyn King, its Governor, said a survey the Bank had commissioned into household debt would show the debt problem was no worse than it was five years ago. "The picture of indebtedness for all households taken together is by no means as bad as some of the headlines might suggest," he said.

The Bank will publish research this year based on a survey of families over five years looking at how debt is spread across different income groups. "The early indications are that the scale of the debt problem has not risen markedly over the last five years," he said.

There were crucial differences between the current market and the one 10 years ago when house prices peaked before suffering a crash, he said. A decade ago more than half of borrowers had a mortgage worth more than 90 per cent of the value of their home compared with a fifth now.

"The scale of the problem seems much less and is likely to be much less, even if there were to be a fall in house prices, than it was a decade ago," he said.

Cynics might claim his comments echo The Sun newspaper's famous "Crisis? What crisis?" headline referring to Prime Minister Jim Callaghan's insistence that Britain was not in chaos in 1979's Winter of Discontent.