Bank Survey Shows How Householders Are Struggling
A disturbing survey for the Bank of England has revealed that nearly a million families are struggling to pay off their mortgages, with another 1.8 million saying that they have had repayment problems 'at least occasionally'.
The annual mortgage payments of homeowners in the UK have gone up by a total of £3.6bn in the last year as interest rates have soared. The trend is expected to continue and the picture worsen as the credit crunch forces banks to tighten their lending criteria as money is less readily available and they seek to repair their own battered finances.
Experts warn that more households are likely to be tipped over the edge into insolvency in the next two years, and the housing market and wider economy will suffer a sharp downturn.
The survey is part of the Bank's Quarterly Bulletin, and it also shows that many families are having to cut spending or borrow more money from other sources. Nearly half of families facing higher interest rates are being forced to cut spending elsewhere - even on every day items. Around 10% have had to borrow more or extend their mortgages, and a further 10% have had to take on a second job or increase overtime hours.
The poll takes on an even more alarming status when it is realised that it was carried out in September, and the global financial crisis has got a lot worse since then. Mortgage lenders are not helping the situation by holding back on passing last week's Bank of England base rate cut to their customers.
The survey shows how vulnerable finances of families have become after a decade of easy borrowing which has taken personal debt over £1.3 trillion.
In the last few months fixed rate borrowers have seen an average of £708 added to their annual mortgage bill as good deals ended and they were forced into a new deal - under terms that have been nowhere near as good. Over a million more borrowers are facing the same pain in 2008. Borrowers on variable rates have reported an increase of £540 per annum. This has left nearly 10% of the country's 11.8m mortgage holders struggling to make their repayments. This is the worst figure since 1995.
Citigroup economist Michael Saunders said last night: "The severity of the housing slide and credit crunch raises the likelihood of a sizeable consumer slowdown. Stretched housing valuations and the financial market crisis may cause a vicious circle as reduced credit availability worsens the plunge in housing demand. The resultant drop in house prices and economic growth may then cause a further tightening in loan standards."
The study also shows that families are taking on bigger debts than ever to purchase their home, as house prices have trebled since the early 1990s. Some 15% of people now owe more than £150,000 on their mortgage - it was less than 5% in 1991. Nearly one in three households have to pay over 20% of their income on mortgage bills, higher than any time since the survey began in 1991.
The Bank report said: "Higher house prices have meant that new entrants to the housing market have had to borrow larger amounts to finance a house purchase than did their predecessors. The increase in mortgage repayments represents a loss in disposable income that requires some adjustment to household budgets."
One ray of hope is that the Bank did say that a lower percentage of people are having trouble servicing their debt than in the recession of the early 1990s.
Published on December 19, 2007
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