One million families struggling to pay mortgages
According to a survey from the Bank of England, almost one million families are struggling to pay off their mortgages with another 1.8 million people saying they have hit problems ‘at least occasionally’.
The situation is expected to deteriorate as the global credit squeeze prompts banks to tighten their lending criteria. Rocketing interest rates has increased homeowners’ yearly mortgage payments by a total of £3.6 billion in the last 12 months.
Experts are warning that this could push more households towards debt resulting in record insolvency rates over the next 2 years. It is expected that the property market and broader economy will suffer a significant downturn.
The poll, in the Bank’s Quarterly Bulletin, has established that many households are being driven to cut spending or borrow even more. Nearly half of families faced with higher interest payments are having to reduce their spending while 10% have been forced to borrow more or extend their mortgages. Finally, another 10% had to take on a second job or work overtime to make mortgage repayments.
Worse still, the Bank’s poll was carried out in September when the global financial crisis was in the early stages. Since that time, the situation has deteriorated significantly. Furthermore, some homeowners are missing out as some lenders are neglecting to pass on the quarter-point interest rate cut announced by the Bank earlier this month.
The survey also discovered that those who are renting are having much more trouble repaying their debts than those who have mortgages, usually because they are on lower incomes. Approximately 28% of renters said they had trouble paying their debts ‘at least occasionally’.
Chief economic adviser of The Confederation of British Industry said that 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 exaggerated.