by Mark Johnston
Several weeks ago mortgagerates.org.uk reported on a growing fear of a second credit crunch which may push the UK mortgage market over the edge. The Bank of England were predicting that the number of available loans will plunge over the next few months which will create a second mortgage drought.
Mortgagerates.org.uk highlighted fears within the financial industry that banks and building societies would not be able to raise the money that they needed in order to lend to homebuyers as they would not lend to each other.
Mortgagerates.org.uk reported that the Bank of England’s biggest worry was that some of the schemes that were set up to pump more credit into the system were due to end.
In an update, the latest data did show that the numbers of repossessions were dropping but only as a result of the schemes that the Government introduced. Much of this support is now being reduced or taken away altogether by the new coalition Government.
One such scheme, supports those who are in receipt of state benefits; paying 6.08% regardless of how much borrowers pay back to lenders. But the borrower may end up actually better off as they may agree a much lower rate with their bank and then pocket the difference.
This has raised obvious concerns within Government who have moved quickly to reduce the rate down to 3.75% from October this year. The rate has been calculated by the Bank of England using the average rate that borrowers are paying in interest.
Some social charities are unhappy about the changes as they believe that a change in rates will leave many families such worse off with no way to keep up to mortgage repayments as they are left with a shortfall if they are still paying a high interest rate.
The agreed cut of 2.33% could work out to be as much as £200 per month on an average £150,000 mortgage.
The debt charity, the Consumer Credit Counselling Service, said the decline would “aggravate” the level of repossessions.
Malcolm Hurlston, head of CCCS, said: “The cut in Support for Mortgage Interest will make it harder, and in some cases impossible, for many people to stay in their homes.”
The cut follows a warning from the homeless charity Shelter who highlighted that there are more than five million homeowners who cannot afford any sort of rise in interest rates and would face repossession.
Many are concerned that even though repossessions are lower than originally predicted, that this is due to the sustained low interest rates. Those on tracker or variable mortgages would not be able to cope with increases if or more importantly, when, the Bank of England rate increases.
A spokesman for the Department for Work and Pensions said: “We’re changing the rate at which we pay Support for Mortgage Interest because currently over 90 per cent of people are getting more than they actually pay out in mortgage interest each month – this is unfair to the taxpayer and not a good use of public funds. Using the Bank of England rate will ensure that people still get the help they need with their mortgage interest payments.”
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