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Mortgage Debt Now At 1 Trillion

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Mortgage debt breaks £1 trillion barrier

Hilary Osborne and agencies

Thursday June 29, 2006

Britain's collective residential mortgage debt has broken through the £1 trillion barrier, figures from the Bank of England showed today.

Homeowners now owe a combined total of £1,006,796,000,000, after a £9.3bn increase in mortgage lending in May. This was above the increase recorded in April and the average of the past six months.

In addition, the Bank said more than £29bn worth of secured lending had been approved during the month, with 117,000 mortgages worth £15bn approved for house purchases, and 102,000 loans offered to remortgagors.

The value of mortgage lending has been driven up in recent years by the housing boom, as people have had to borrow increasingly large sums of money to get on to the property ladder or to move up it.

Figures published earlier this week by the British Bankers' Association (BBA) showed that the average mortgage for house purchases was £139,300, compared with just £100,800 in January 2004.

Looking back further, in January 2000 BBA figures show homebuyers were borrowing an average of just £66,100 - less than half the amount needed today.

But despite a slight increase last year in the number of people falling behind with repayments and having their homes repossessed, there are few signs that consumers are overstretching themselves with mortgages.

The Council of Mortgage Lenders (CML) said that the average person taking out a mortgage during 2005 spent just 15.3% of their income on interest payments, just over half the 26.5% of their pay people needed for payments in 1990.

Furthermore, CML said UK homeowners had £3.6 trillion worth of unmortgaged equity in their properties.

Sue Anderson, CML spokeswoman, said much of the concern over consumer indebtedness centred on unsecured borrowing and there was no reason to suspect a rise in repayment problems simply because mortgage lending had passed the £1 trillion mark.

"While there are no doubt reasons to look with a more cautious eye at individuals' borrowings, because we expect interest rates to rise and we don't expect house prices to increase very much, the fundamentals of the market are actually pretty strong," she said.

The Bank's figures are in line with those reported by the BBA earlier this month, which also showed a record rise in new mortgage lending during May, and a rebound in the number of new loans approved.

The figures suggest the mini-boom seen in the housing market earlier this year could still have further to go.

Economists had speculated that the revival was running out of steam after the number of mortgages approved for buying a house had fallen during two of the first four months of the year

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Looking back further, in January 2000 BBA figures show homebuyers were borrowing an average of just £66,100 - less than half the amount needed today.

But despite a slight increase last year in the number of people falling behind with repayments and having their homes repossessed, there are few signs that consumers are overstretching themselves with mortgages.

The Council of Mortgage Lenders (CML) said that the average person taking out a mortgage during 2005 spent just 15.3% of their income on interest payments, just over half the 26.5% of their pay people needed for payments in 1990.

I always have problems with these sorts of statements. Wonder if the 26.5% peak mentioned is for the half a day at 15% when we had the ERM debacle, Vs the lowest you are gonna get for a long time 15.3% of right now. Need more stats on the term average! After all the average first time buyer borrowing figures don't buy a first runger at 3.5X. Lastly how about we look at disposable income percentages, given much of our reduced income is from taxation rather than this average of gross thing.

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Homeowners are worse off than ever:

http://www.findaproperty.com/story.aspx?storyid=9687

Commenting on the figures, Fionnuala Earley, Nationwide's Group Economist, said:
"House prices grew by 0.3 per cent in June, the third consecutive month of flat growth. The three-monthly growth rate clearly shows the slowing trend in house price inflation since March.
......./
"Deterioration in affordability and its likely impact cannot be ignored," said Fionnuala Earley. "Mortgage payments for someone on average earnings now take up around 42 per cent of take home pay compared with around 32 per cent three years ago.

All that borrowing and less to spend! What a joke HPI-MEW is. :lol::lol:

Edited by Realistbear

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The Council of Mortgage Lenders (CML) said that the average person taking out a mortgage during 2005 spent just 15.3% of their income on interest payments, just over half the 26.5% of their pay people needed for payments in 1990.

Let's pull this apart and see what it means about the average mortgage buyer....

Average household income - approx 35k

So spending 15.3% on morgage payments is £5350 per annum

At a 5% mortgage rate, that would mean that the mortgage was £76,000.

Actual UK average house price: £185,000

Hmmmm.

So, what's going on? Well, three main possibilities.

1 - the people taking out morgages at the moment aren't on the average wage. Only people with oodles of cash are buying houses.

2 - the only people buying houses are those with big piles of equity, to make up the difference between their mortgage and the house price.

3 - A lot of new mortgages are remortgages, from people extracting equity from their overpriced homes.

Verdict

1 - it does seem likely that the average housebuyer isn't on the average wage any more, so this probably contributes.

2 - Since we know that the first time buyer is now an endagered species, this is almost certainly a factor behind the figures. The vast majority of people buying houses can only afford to do so on the basis of the overvaluation of their existing property.

3 - This is effectively the same as point 2, except it doesn't actually entail a property purchase in the short term - just the expectation of being able to realise the current valuation somewhere down the line. Remortgaging is big, so this is also a major factor.

So what does this mean? First, that the situation for actual first time buyers is far worse than this article casually implies. Those few FTBs that do still exist are surely paying a far higher proportion of their income than was the case in 1990.

Second, the figures quoted in this article are artificially low when compared against 1990, when remortgaging was a much smaller component of transactions, and FTBs made up more of the figures.

Third, any journalist who quotes basic averages like this and tries to draw broad implications from the market without thinking about the distribution of figures should be shot.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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