Rising Mortgage Debt but Borrowers Seem Unfazed.

by Mark Johnston

Rising Mortgage Debt but Borrowers Seem Unfazed.

A study conducted by the Office for National Statistics (ONS) suggests that the average debt on a property rose sharply in the early stages of the financial crisis.

Statistics revealed that between 2008 and 2010 home owners racked up a combination debt of around £847.9 billion.

However, despite the country being plunged in to the worst post war recession, the number of households nationwide who considered their property debts a heavy burden fell from 15.2 per cent in 2006/8 to 13.6 per cent in 2008/10.

Although the burden of debt did ease thanks to the intervention by the bank of England as they dramatically cut back its bank rate, eventually taking it down to a historically low 0.5 per cent.

It has remained there for three and half years and some economists are not expecting it to rise any time soon. However, other experts feel that if and when rates do go up, many people in the UK are likely to experience their property debt as a ‘heavy burden’.

Recent research from the Halifax showed that around 85 per cent of all households would struggle if they had to try and find even just an extra £24 per month on top of their usual monthly repayment.

But while borrowing costs fell, consumers were then squeezed by high inflation and low wage growth. Although the fall in borrowing costs seems to be enough at the moment to outweigh this.

Therefore more recently borrowers have benefitted from the governments funding for lending scheme, this initiative has driven mortgage rates to historic lows.

Mark Dyson, director of independent mortgage broker Edinburgh Mortgage Advice, said “low interest rates helped borrowers to maintain their repayments despite the economic downturn”.

It seems then that currently the low interest rates mean that fewer Brits consider their mortgage debt a ‘heavy burden’.

The Royal Institution of Chartered Surveyors (RICS) has also reported that property demand rose to its highest level in more than 3 years.

According to new research, home owners in the UK have an average balance of almost £100,000 outstanding on their mortgage.

This average mortgage balance appears to then offer a glimpse in to the size of loan British households are trying to service at present in a time when inflation is easily outstripping wage growth.

The housing equity withdrawal figures from the bank of England have consistently shown that households have been paying down their debt, which suggests the debt burden will have become lighter.

Industry regulators have therefore raised concerns about the level of property debt in the UK, which is only being serviced and not repaid.

Some financial experts have therefore warned that interest only mortgages still remain a ‘ticking timebomb’ for many financial institutions.

Current data shows that more than 2.6 million interest only mortgages will be due for repayment over the next 30 years but as few as one in ten people with these deals have no way or plan in place to repay the debt.



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