Debt pressures to keep piling on homeowners

Published on Sunday 3 June 2007 00:52

HOMEBUYERS will be hit by higher mortgage bills from this week as lenders raise monthly home loan repayments following the Bank of England's recent interest rate hike, writes Teresa Hunter.

But the pain will not end there. Households are bracing themselves for higher bills still should the Bank's Monetary Policy Committee raise borrowing costs yet again at its monthly session on Thursday.

The agony is being piled on amid evidence that house prices could be falling in some areas, the demand for loans is sliding and our indebtedness has soared exponentially.

Typical standard mortgage rates will have been hiked for the fourth time in a year from Friday to 7.5%, pushing the cost of a 50,000 mortgage up by between 8 and 10, or between 16 and 21 on a 100,000 loan.

There is more grief on the way, with a further 0.25% looking likely, adding the same again to monthly repayments. Already over the past year, a 100,000 borrower has had to find an extra 80 monthly.

Opinion is split over whether the Bank will raise rates for the second month in a row, although the disclosure that it seriously considered going the full hog with a 0.5% rise last month has added fuel to speculation that it might turn up the heat again.

However, the wider consensus expects the Bank to wait until August before it moves again.

That does not mean homebuyers' worries are over. Many are already struggling to meet their repayments. According to the Registry Trust, up to a million people are facing court hearings because they cannot pay their debts, which represents a 10-year high.

Furthermore, banks have disclosed they have had to write off a staggering 3.1bn in credit card debts which customers cannot pay, the biggest write-off in their history.

And this comes amid signs that house prices could be about to stall. The Land Registry for England and Wales last week released data showing small slides in prices in the northeast of England, the southwest, the northwest, and Yorkshire and Humberside.

This came hard on the heels of data from the Registers of Scotland which calculated that prices north of the Border had fallen by 2.2% over the past quarter, pushing down the average price of a home to 139,836, compared with 143,055 for the previous three months.

But values were still up on a year ago, with the biggest increase in Grampian, where property climbed 28%,

However, Halifax Bank of Scotland chief economist Tim Crawford cautioned against placing too much emphasis on the registry figures. He compiles his own house price indices for the UK as a whole and also for Scotland specifically.

Crawford said: "Our data is not showing any corresponding fall in prices so far.

"The key thing to remember about the registry numbers is that they do not seasonally adjust to allow for different demand at different times of the year."

Nevertheless, the latest statistics from the Nationwide Building Society pointed to a further slowdown in property inflation and demand for mortgages.

According to Britain's biggest building society, house price inflation cooled from 0.9% to 0.5% last month. Furthermore, 107,000 loans were agreed for borrowers looking to buy, compared with 112,000 the previous month, the lowest number of mortgage approvals since late 2005.

Nationwide's chief economist Fionnuala Earley warned borrowers against taking on more debt, urging: "Threats of higher interest rates should signal a warning to those stretching their finances. Think carefully before taking on new debts."