Money Saving Advice

The extent to which Britain has got itself into a mortgage and credit mess is being revealed in new information from the Housing Charity Shelter. It estimates that 6% of householders have begun to use their credit cards to help make their mortgage or rental payments in the last year. That amounts to over a million who are now using plastic to pay for the roof over their heads.

This is an expensive and risky strategy as credit card interest rates are much higher than mortgage interest rates – typically around 15% compared with around 6.5%.

It appears that young people are the most likely to adopt this approach of shifting their debts, despite the risk of long-term ruin in doing so. With the credit card interest rates being around 2.5 to 3 times high than mortgage interest rates, there is an air of desperation to this way of staving off eviction and repossession, and, presumably, a hope that it will all get better soon.

Shelter revealed the facts in a survey of around 2,000 people, which showed that almost one in ten householders were propping up their mortgage with credit card debt in some parts of the country. The worst group was the 18 to 24 year-olds, where the figures was 7.5%. Shelter chief executive Adam Sampson said: “The number of people hit by the credit crunch, interest rate hikes and unaffordable housing costs is rapidly rising.”

This appears to be the result of borrowers over-reaching themselves when credit was cheap, and with the Bank of England’s base rate having rise from 4.5% to 5.75% in 12 months from August 2006, many people now simply can’t afford their new repayments on their income alone. Experts in the industry blamed lenders for letting customers borrow beyond their means. Heather Keates, director of Community Money Advice, said: “It's fine if you pay off the [credit card] balance every month but I would suggest most people don't - they just pay off the minimum, so the debt starts to spiral.”

Worse may yet be around the corner for many people with the imminent end of cheap fixed-rate mortgages suddenly adding hundreds of pounds more to housing costs.

Posted by Peter Kenny at 07:05 AM | Permalink | Comments (0) | TrackBacks (0)

Property industry watchers are warning that a property crash could be on the way, the like of which we haven’t seen since the 1990s.

Consumer confidence has been badly hit by the Northern Rock crisis – a very obvious manifestation of the global credit crunch that has come to Britain’s high streets. This has increased the possibility of a housing market downturn – especially in London.

Chief economist at the Royal Institution of Chartered Surveyors, Simon Rubinsohn, thought there was now a one in ten chance of a crash on the scale of 1990 to 1993 when negative equity hit so many families in the UK. He rated an even higher chance – 20% – of a 10% fall in property prices in London in the next 12 months with mortgages taking the biggest hit. The capital has been the strongest market performer over the last year, but the best hope it has got for the next year is to flatten out to no change.

The images on our TV screens and on the front of our newspapers of savers queuing round the block to withdraw funds from Northern Rock is bound to have an effect on consumers, and could result in slowdown in consumer spending, a fall in economic growth and a halt in the property market.

Already it has been reported that London estate agents have seen a drop in the number of enquiries, the quietest weekend of the year coming straight after the Northern Rock loan crisis. The market, some agents say, is taking a breather, with the buy-to-let market looking particularly vulnerable as lenders view it as riskier – despite an impressive payment track record by investors.

Major property developments in London could also be hit. The £1bn Shard of Glass tower is at some risk after the firm behind it complained of problems in the financial market hampering its attempts to secure further backing.

Better news all round was that the inflation rate dipped to 1.8% in August – from 1.9% in July – though food increases are expected to take it back up again soon.

Posted by Peter Kenny at 08:36 AM | Permalink | Comments (0) | TrackBacks (0)