by Mark Johnston
Sixteen percent of homeowners are struggling to pay their mortgage each month according to newly published research. One in six UK home owners are finding it difficult to pay their mortgage on a monthly basis even though it is now cheaper to buy a home rather than renting in 80% of the country. With mortgage affordability at ten year low, experts are concerned that tough spending cuts introduced by the coalition government are having a sustained and serve impact on home owners in the UK.
Currently mortgage repayments account for an average of just 15% of borrowers monthly outgoings which results in repayments being at their lowest rate since 2002. The very low Bank of England base rate is widely attributed to fall in affordability together with recent value decrease in UK homes. The report which looked at affordability in the mortgage market monitored mortgage payments being deducted from 1.3 million current accounts to understand the relationship between mortgage payments which is one of the largest monthly outgoings and the income of borrowers in the UK.
The research carried out by UK lender Barclays highlights an improvement in affordability even though house prices have increased by a massive 68% in the same period. Many home owners are enjoying the low interest rates and as a result lower monthly repayments, some savvy borrowers are using the opportunity to pay more back on their mortgage to save money in the long term by paying their mortgage off earlier.
The worrying part of the report is the 30% of borrowers who reported being stretched in terms of their mortgage repayments. Although they were managing to meet their payments, any increase in the Bank of England rates or a drop in income could lead them into financial difficulties even if the changes were minimal.
Out of the borrowers who took part in the research, 16% reported to be having problems paying their monthly mortgage repayments at the moment. Many attributed the problem to an increase in the cost of living or a drop in their income due to government cuts or cuts at work.
The head of mortgages at Barclay Andy Gray said: “It stands to reason that with interest rates at an historic low, mortgage affordability is at its best in a decade, but it is crucial that homeowners are not complacent. When asked specifically about coping with rising interest rates, it was great to hear that 71% say they either already have a plan in place to manage increased monthly mortgage repayments, or that they will be unaffected as they are on fixed rates.
He went on to say: “But homeowners who are not already thinking about their mortgage certainly need to be, to ensure they have a contingency plan when interest rates start to increase.”
Related stories to : Sixteen Percent of Home Owners Canty Afford Their Mortgage