Mortgage Holders Are Struggling To Keep Up

A survey for the Bank of England has revealed disturbing facts about UK mortgage holders. Nearly a million families are struggling to pay off their mortgages, and another 1.8 million say that they have had repayment problems ‘at least occasionally’.

In 2007 the annual mortgage payments of UK homeowners have gone up by a total of £3.6bn as interest rates have soared. The problems with payments are expected to get worse as the credit crunch means banks have to tighten their lending criteria as they seek to repair their own battered finances.

More households are likely to be tipped into insolvency in the next two years say experts, and the housing market and wider economy will suffer a sharp downturn.

The survey comes as part of the Bank’s Quarterly Bulletin, and shows that many families are cutting spending or borrowing more money from other sources. Nearly half of families with higher repayments are being forced to cut spending on every day items.

The poll was carried out in September, and the global financial crisis has worsened considerably since then. The survey shows how finances of families are now vulnerable 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 their annual mortgage repayments go up by an average of £708 as they have come off good fixed rate deals, and more than a million more borrowers are facing the same problem in 2008.

The Bank report said: “Higher house prices have meant that new entrants to the housing market have had to borrow larger amounts to finance house purchase than did their predecessors. The increase in mortgage repayments represents a loss in disposable income that requires some adjustment to household budgets.”

People who rent are having more trouble repaying their debts than those who have mortgages, because they are often on lower incomes, according to the survey. Around 28% of renters said they had trouble paying their debts ‘at least occasionally’.

Chief economic adviser Ian McCafferty said: “It’s fair to say that the direction of the economy is clear into 2008 - the economy will slow quite markedly. While the slowdown may appear dramatic set against this year’s strong growth, the fundamentals of our economy remain sound and talk of a full-blown recession is overstated.