Bank of England governor Mark Carney has expressed concerns that holding interest rates at a record low for too long could be damaging.

He said it encourages households to take on unaffordable levels of debt and said the Bank would act accordingly if it felt this issue was spiralling out of control.

Concerns over the potential for a housing bubble and a return to recession are fresh on the minds of those in power, which is why the situation is being closely monitored.

At an address at the Commonwealth Games business conference, Mr Carney said the prospect of taking on more mortgage debt to afford a home was a risk, as spending power would be limited in other areas of the market.

“The Bank is well aware that a prolonged period of historically low interest rates could encourage other risks to develop,” he explained.

“In the UK, the biggest risks are associated with the housing market. History shows that the British people do everything they can to pay their mortgages.

“That means cutting back deeply on expenditures when the unexpected happens. If a lot of people are highly indebted, that could tip the economy into recession.”

Concerns over unaffordable mortgage lending

Mr Carney was keen to add that the bank was not looking to control property prices but that it was concerned about how the wider economy would be affected.

This led to it limiting the volume of high loan-to-income mortgages last month that lenders are able to approve, while tougher mortgage rules should mean borrowers can withstand any potential rate increases.

Despite the recovering economy, numerous financial threats still remain and this is leading many households to curb their spending.

However, the Bank has said that real wages will need to rise consistently before any potential rate increases occur – an initial date of early 2015 is currently looking likely for that change.

Many are looking to use low interest rates to support their mortgages, but this could lead to financial problems in the long-term when rates rise again.

Keeping funds available to cope with change

For those that are not prepared and are not watchful, payments could become unaffordable which could place the entire mortgage at risk.

Carefully managing spending in the current period is therefore recommended, and can be easily done with a prepaid card.

Using such a method would see funds transferred on a card – with only those on the card available to be spent.

The risks of fraudulent activity are also reduced as a prepaid card is not linked directly to a bank account, making funds on the card safer.

Even if a card is lost or stolen, it can be cancelled or replaced easily and in most cases the funds will not be affected.