UK:Mortgage rise will plunge a million homeowners into 'perilous debt'

[jakeXT]

High prices leave borrowers exposed as it emerges that 13 million people paid for Christmas on credit

More than a million homeowners will be at risk of defaulting on their mortgages and losing their properties in the wake of even a small rise in interest rates, a bombshell analysis reveals. Borrowers who have failed to pay down their mortgages when interest rates have been at record low levels now face being overwhelmed by "perilous levels of debt" when the inevitable hike comes.

Gillian Guy, chief executive of Citizens Advice, warned of a "financial ticking timebomb": "The rising cost of energy, food and travel has been absorbing any spare income people may have. This means that in some cases there is little or nothing left to cope with larger mortgage repayments."

According to a new report from an influential thinktank, the Resolution Foundation, even in the most optimistic scenario – in which interest rates rise slowly to 3% by 2018 and economic growth is strong and well-distributed between the rich and poor – 1.12 million homeowners will be spending more than half of their take-home pay on mortgage repayments – this is a widely accepted indicator of over-indebtedness.

If the Bank of England were to raise interest rates more quickly, to 5% by 2018, and growth continues to be slow, around two million households would be plunged into financial trouble – and around half of these would be families with children.

http://www.theguardian.com/money/2013/dec/28/mortgage-rise-homeowners-perilous-debt

[dipsydoodle]

1. an influential thinktank.....

A cabbage could've figure that out. If for example the payments on an interest only mortgage @ 4% on a £100000 were c. £335 then common sense dictates that if rates increased to 8% the payment would double to c. £670.

Those who run into distress will help put a correction in the house market by pulling the house prices down again to levels which others may at least be able to afford - high prices are only of benefit to existing owners.

Current interest rates are artificially low. It was the late '80 which were the real killer when our mortgage rates hit 16%. Try that for size.

[jakeXT]

2. Better than the Cyprus deals

Thousands of British investors who were mis-sold property in Cyprus have until December 31 to file a legal claim against lenders and developers – or face devastating losses.

(Update - since publication, the Cypriot government has extended the deadline to December 31, 2014)

As many as 15,000 Britons bought property in Cyprus between 2003 and 2009. Many bought “off-plan”, meaning building work was still unfinished or hadn’t even begun.

Most of those affected are buy-to-let investors who planned to offer the property to holidaymakers. Some were expats who moved to the island to work or for retirement.

A large number now face financial ruin due to huge currency fluctuations, which caused mortgage repayments to double or triple in size, and plunging house prices.

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/10516732/My-Cyprus-mortgage-repayments-went-up-by-166pc.html