PwC warns of looming mortgage crisis
PricewaterhouseCoopers (PwC), the accountant, has published its annual review of the credit card industry, in which it warns that the UK could be heading for the kind of mortgage crisis that has afflicted the US.
According to PwC, almost one-and-a-half million people will see their mortgage repayments increase substantially next year.
As a result, consumers are likely to turn to their credit cards and start using them for everyday expenses.
In 2008, over 1.4 million people will see their two-year fixed-rate mortgages come to an end.
The PwC report estimates that fixed-rate mortgages taken out in January 2006 will rise by £140 a month on average, in 2008.
Interest payments for mortgages as a percentage of income are already at a five-year high in the UK.
Figures for June 2007 (the latest available), show that UK mortgage borrowers spent on average 17.7% of income on their mortgage, as compared with 11.6%, in 2002.
In its report, PwC points out that information published by the US Federal Reserve shows how the use of credit cards rose during the American sub-prime mortgage crisis because people borrowed more to cover normal living expenses and that “There are signs we are witnessing the same in the UK”.
In addition, the latest survey from Lloyds TSB Corporate Markets indicates that consumer confidence is being adversely affected by the fact that mortgage costs are rising at a time when food and oil prices are also increasing.
In its survey, the bank found that a record 81% of respondents expected prices to rise further in 2008.