Mortgage debt crisis feared
With the recent rises in the Bank of England’s interest rate by a quarter of a percent, homeowners are struggling to meet repayments where mortgages are concerned. According to a spokesperson at RBS Mortgages, many are resorting to taking on further loans or even remortgaging simply to stay afloat. Many are banking on the continued rise in the property market – an average of 10% per year – to add extra equity to their homes, only to borrow against it when the need arises.
There has also been another recent set of pressures added to the homeowner’s list: the increase in costs with regard to council tax, utility bills and fuel are increasing the financial strain on their savings.
In the second quarter of 2006, a record 27,000 homeowners went into insolvency for reasons very similar to the ones listed above; some mortgage-payers chose to try and ignore one or two payments, but soon found themselves in arrears with the lenders. Once in arrears, they were unable to make the repayments and default penalties. This led to an ever-decreasing circle of debt that, for some, was finally settled in the County Courts with Repossession Orders being issued. The figures are predicted to rise by another third in 2007, which would be the equivalent of 77 houses being repossessed every day.
The Royal Institute of Chartered Surveyors has predicted a gloomier scenario for 2008. They believe that the escalation in the property market will plateau in the New Year and those homeowners hoping to borrow against a supposed equity rise or even move house will be “unable to sell their way out of trouble”.
There is also the problem of those whose fixed-rate mortgage contracts will expire in the next 18 months. There are nearly 2 million homeowners in this position and they may find themselves having to renegotiate their contracts with the interest rates having risen by a further one and a quarter percent.
Currently there are an estimated 125,000 homeowners with three or more months of arrears to try and settle. This is a 4% rise in the figures for the second half of 2006.
There has already been a rise in the number of Individual Voluntary Agreements (IVA) since 2006 and, as a result, banks are refusing to agree to them with more frequency. This is because under the agreement of an IVA, the debtor does not have to pay off the full amount of their debt. However, banks’ reluctance to enter these agreements is leaving a large proportion of insolvent consumers with a large amount of debt still to settle, even after the losses of their homes. Sometimes, in their haste to recoup their losses, lenders are not attaining the market values for properties – again saddling the insolvent parties with more debt and no visible means of paying it off.
Financial experts have observed that while many homeowners are using or switching to unsecured mortgage deals, they may turn to their credit cards to support any payments that they cannot match with their income. Considering that wage increases have not matched the rates of inflation, this can only lead to one possible outcome and that is: more debt.
Source: aboutproperty.co.uk
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