Turmoil in Eurozone increases mortgage costs
The Bank of England has warned that the ongoing Eurozone crisis is pushing up the cost of borrowing on wholesale financial markets.
This is making it more expensive for lenders to fund mortgages and they are passing the costs on to customers by increasing their mortgage rates.
“In the absence of falls in funding costs, it suggests that some further increase in mortgage rates is likely as banks seek to restore their margins,” the Bank of England said in its quarterly inflation report.
Many lenders have already increased their standard variable rate (SVR), including Yorkshire Bank, The Co-operative and the Halifax.
Consumer watchdog Which? estimates that this will cost consumers an additional £300m in mortgage repayments over the next year.
Many mortgages revert to the SVR when an introductory offer ends, but consumers with little equity in their homes may find it difficult to switch to a better deal, and with house prices stagnating many home owners may find themselves in this position.
Una Farrell, of the debt advice charity Consumer Credit Counselling Service (CCCS), commented: ‘The margin between being able to pay your mortgage and falling into arrears is paper-thin for many.
‘Even a small increase in their mortgage costs will push many over the edge.’
The CCCS estimates that 10 per cent of homeowners with a loan are in ‘some form of distress’.
Earlier this month the charity warned that over six million households are financially vulnerable, and in the face of high inflation, job insecurity and cuts to welfare benefits it expects an increase in personal insolvencies over the next year.
Despite the UK falling back into recession, Prime Minister David Cameron has called on the eurozone to adopt a UK-style pro-business, pro-growth agenda in order to achieve economic recovery.
The British economy has found the right balance between reducing its deficit and achieving growth and is “moving in the right direction” Mr Cameron said.