The Bank of England yesterday released the notes from the latest regular meeting to discuss interest rates. While it was confirmed that all nine members had voted to keep rates pegged at the current rate of five percent, this stance may change after data released yesterday.

It was also reported yesterday that retail spending soared over the last month, even adjusted for the obvious Christmas bias, with credit cards one of the main source of short term finance. Add in the fact that mortgage lending grew by a record amount last month (in the run up to what is often a quiet Christmas period) and you have a potential recipe for disaster. Interest rates look almost certain to rise again, with many stockmarket observers pencilling in a rise at next month’s meeting.

But why is the consumer ignoring recent rate rise? When will the increased payments kick-in?

The housing market is the main fuel for the recent rise, with many home owners counting on the “profit” from their homes to bail them out of any tricky situations. This is all well and good until house prices start to slow, and then eventually start to fall. The amount of home owners on the edge of financial trouble is growing, meaning that there are potential thousands of “twitchy” sellers as and when they see prices stalling, or hit financial troubles. This trickle of “twitchy” sellers can soon become a wave, and grow and grow, resulting in severe pricing pressure on the housing market.

There is also the situation with regards to first time buyers who are being stretched to the limit, some taking up mortgage offers of five times salary, with very little of a buffer between outgoings and income. As interest rates continue to rise, and the discounted mortgages of the past come to the end of their term, some home owners will see a substantial rise in their mortgage payments. Bankruptcies, house repossessions (which were all associated with the 1980s) will put further pressure on the markets.

Retail spending is in a similar situation to mortgage deals, with many of the credit card companies offering potentially reckless short term finance deals, which attract many consumers. Once their short term deals are over, they will also see a massive increase in repayments (with many over spending in the run up to Christmas).

While the UK economy is looking rosy at the moment, and everybody seems to be making money and enjoying themselves, we are perhaps just one or two interest rate rises away from a potentially enormous credit crunch for consumers. Now is the time to reorganise your finances, before you are forced into it.