One in six has a mortgage four times their salary: Bank of England reveals many struggling with payments in negative equity
- Bank of England report shows huge gulf in Britain
- One in 25 families are currently in negative equity
- The Bank has kept the base rate at 0.5 per cent
One in six families have mortgages which are more than four times bigger than their salaries, the Bank of England reveals today.
The report highlights the huge gulf in Britain because half of families have no mortgage or only a small loan of less than twice their salary, but 16 per cent have ‘a debt to income ratio above four.’
If a worker earns the average full-time salary of £27,000, this means his or her mortgage is more than £108,000 or, if a couple earn a total of £50,000, their mortgage is more than £200,000.
Report: One in six families have mortgages which are more than four times bigger than their salaries
Of those struggling with their mortgage, many are also in negative equity, which means the size of their loan is bigger than the value of their property.
The Bank’s quarterly bulletin, published today, reveals one in 25 families are currently in this precarious position, a disaster if they want or urgently need to sell their home.
The number of negative equity victims has risen sharply since 2007, the year that the credit crunch struck, when just one per cent were affected to four per cent of households today.
To add to the pressure on families, their other debts are also rising.
For those who have unsecured debts, such as personal loans, the average amount has jumped by nearly £1,000 over the last year from £5,400 to £6,300 this year.
When asked how they feel about their debts, nearly two-thirds of families with large mortgages relative to the value of their homes said they are ‘somewhat or very concerned.’ This only applies to people whose mortgage represents 75 per cent or more of the current value of their property.
It comes at a time that the Bank has kept the base rate at 0.5 per cent, the lowest level in its 319-year history, raising fears of how families will cope when interest rates rise.
Asked how they would cope if the interest rate on their mortgage rose by 2.5 percentage points but did not get a payrise, one in two families said they would have to ‘cut spending or work longer hours’.
Yesterday the Council of Mortgage Lenders said mortgage lending jumped to its highest monthly total last month for six years.
In November, around £17billion was handed out in mortgages, which is 30 per cent higher than the same month last year and the highest monthly total amount since November 2007.
Homes: The number of negative equity victims has risen sharply since 2007, the year the credit crunch struck
Bob Pannell, the CML’s chief economist, said mortgage lending is still ‘a far cry’ from the pre-credit crunch days because banks and building societies have become so much more ‘risk-averse.’
The pressure on people to buy a home is immense with wages stalling or falling for the last five years, but house prices continuing to rise.
Young people are having to take out the largest-ever loans – £119,500 – and earn the highest-ever salaries – £36,460, either on their own or a joint income with a partner – in order to get onto the property ladder, according to the CML.
To add to this pressure, house prices are predicted to keep on rising, with little or no chance of pay rising at the same pace.
The Royal Institution of Chartered Surveyors predicts house price will rise by eight per cent in 2014, although there will be significant regional variations.
In London, prices will rise by 11 per cent, the fastest of the UK regions, compared to only four per cent in Northern Ireland, the smallest rise.
Peter Bolton King, global residential director of RICS, said: ‘While the number of new homes being built is now on the rise, it still won’t be anywhere near enough to meet demand.
‘We expect the problem of insufficient housing stock to be the main driver behind price increases over the next twelve months.’