Looming mortgage debt threatens new buyers
02/04/2007
Recently, the Financial Times reported on a study by Intelligent Finance which revealed that one in five adults are worried about paying off their mortgage debt. Among 25 to 34-year-olds, the figure rises to one in three.
The worries do not appear to be unfounded. Figures from the Council of Mortgage Lenders (CML) indicate that mortgage repossessions were 65 per cent higher last year than in 2005, which suggests that homebuyers are finding debt management more challenging.
Some would-be borrowers are running into problems before they even start. New research by the Co-operative Bank reveals that 45 per cent of first-time buyers feel that "high levels of debt" are keeping them from getting onto the housing ladder.
Rising mortgage deposits may mean that even people with an average amount of debt are prohibited from purchasing a home. Robin Amlot of Moneyextra cites the company`s research which shows that the average mortgage deposit in February was 11 per cent higher than the previous year.
He says: "It`s no wonder the so-called lower end of the housing market is stalling, with young people attempting to get onto the housing ladder being required to save a figure effectively equivalent to more than a year-and-a-half`s average earnings."
When looking to buy a home, consumers are starting to look for ways to minimise their debt. Research from the CML indicates that 85 per cent of first-time buyers chose a fixed-rate mortgage in January. Denise Blake, mortgage analyst at Moneyfacts.co.uk, claims that debt fears could be motivating Britons to opt for fixed-rate mortgages, saying: "With many people balancing their finances on a knife edge, the fear of any further increases to their mortgage payments is driving many towards fixed rate mortgage deals."
As data from the British Bankers` Association indicates that the average first-time mortgage has reached an all-time high, surpassing £150,000, the government seems to be ignoring the pressures faced by those looking to get on the property ladder.
The recent Budget announcement was criticised by many for ignoring the plight of first-time buyers. GE Money Home Lending said it was "disappointing" that chancellor Gordon Brown did not choose to raise the stamp duty threshold to keep pace with rising house prices. Figures from Halifax Bank of Scotland suggest that one in five buyers are now paying over the stamp duty threshold.
Still, these debt worries do not seem to deter Britons from attempting to buy their own properties. George Buckley, chief UK economist at Deutsche Bank, observed: "Despite weak income growth, high debt levels and increasing household borrowing rates, consumers continue to spend."
However, for those who find themselves in financial trouble, there is still hope to turn their situation around. Richard Watters, managing director of property investment company A Quick Sale, claims that debt problems do not necessarily have to lead to consumers giving up their homes, saying: "Selling your home to raise enough capital to pay off the debt is obviously a last resort and, for many people on the verge of arrears, re-assessing your finances and looking at your monthly out-goings can help get you back on track."
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