A quarter of home owners live on 'financial precipice'

HammerSmashedFace

It may surprise some, but most folk who don't wear any rose tinted glasses have seen this reality for years. A cheap credit boom was the main cause of the ridiculous rise in house prices over the past decade. It has left many, many people on the edge of a financial abyss where a meagre £300 drop in there income would leave them unable to pay their mortgage.

Ok, not a huge amount of people are likely to lose £300 a month, but a small IR rise on these massive mortgages that people have stretched themselves to, could tip them over the edge.

Latest research suggested 26 per cent of borrowers aged between 35 and 44 would be unable to meet their mortgage repayments if they saw a £300 drop in their monthly income.
And one in eight adults in this age range has deliberately over-inflated their income to secure a larger loan, according to the YouGov research, commissioned credit reference agency Callcredit.

Graham Lund, managing director of Callcredit, said: “These statistics are extremely alarming. A significant proportion of these people, many with families to support, are living on a financial precipice where just one negative event, such as a reduction in paid overtime or an unexpected expense, could have disastrous financial consequences.”
It comes after the Council of Mortgage Lenders revealed last month that the number of people being evicted from their homes climbed to a 14-year high, with an average of 126 repossessions a day in the past year.

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/7420732/A-quarter-of-home-owners-live-on-financial-precipice.html

Really2

HammerSmashedFace wrote: »

A quarter of home owners live on 'financial precipice'

So do a 1/4 of all 35-44 year olds own a 1/4 of all property.;)

Not really that surprising £300pm is the same as your basic wage dropping nearly £5K pa:eek:

But in reality I bet more would "cope" than the article makes out, they would just cut back other things.

PS to add I think historically if you knocked 20% off the average wage/income the result would have been not far off the same.

lemonjelly

To be fair, I've personally felt people have been on a sort pf precipice for years & it isn't something that has crept up on us.

Consumer spending for years has, imo been unsustainable. We are now experiencing the comeuppance of that. Lots of belt tightening going on (with the obvious risk of going too far the other way).

Working in advice, I've seen so many who have been financing ongoing living costs with credit which was easily available. That availability has now gone. How are these people going to make ends meet? They will have many obligations which they won't be able to fulfil! & that credit is either no longer available, or it is, but is a lot more expensive.

I have watched personal insolvency go upwards, & can only see that trend continuing.

Wages are unlikely to increase much for the next 2-3 years imo.

We'll soon be at the stage where people who had ppi for loans mortgages who were made redundant will have been out of work for 12 months, so their insurances will stop paying on their mortgages/debts. If they haven't got back into work yet, that is when it could start to bite.

I just don't get why people continue to argue we've turned a corner for the better & normal service has been resumed. We're a long way off that I feel.

Emy1501

Really2 wrote: »

So do a 1/4 of all 35-44 year olds own a 1/4 of all property.;)

Not really that surprising £300pm is the same as your basic wage dropping nearly £5K pa:eek:

But in reality I bet more would "cope" than the article makes out, they would just cut back other things.

PS to add I think historically if you knocked 20% off the average wage/income the result would have been not far off the same.

If interest rates rise by 2.5% then on a 150K mortgage its the same effect. Also those homeowners between 18-35 are likely to be in a worse position than the bracket we are talking.

As said people have been mentioning this for a while now but the usual suspects have been saying it would has no effect

chucky

lemonjelly wrote: »

I just don't get why people continue to argue we've turned a corner for the better & normal service has been resumed. We're a long way off that I feel.

a good balanced post lj - we are from from any financial armageddon like the usual suspects like to preach about

what i'd like to know is that if the UK is "on the edge of a financial abyss" - are other countries worse off than the UK financially in this imaginary abyss already?

Really2

Emy1501 wrote: »

If interest rates rise by 2.5% then on a 150K mortgage its the same effect.

But mortgage rates now are higher than they were when base was 5.5%...

Do you honestly think that when base rate is 3% the average mortgage will be around 8.5-9%?

No one is saying it is fine but losing 20% of a average wage would have been a disaster for most average family's since...... well since people worked and got paid for a living.
It would cripple just as many renters...

chucky

Really2 wrote: »

But mortgage rates now are higher than they were when base was 5.5%...

Do you honestly think that when base rate is 3% the average mortgage will be around 8.5-9%?

No one is saying it is fine but losing 20% of a average wage would have been a disaster for most average family's since...... well since people worked and got paid for a living.
It would cripple just as many renters...

she's assuming that everyone is on SVR's or Trackers and nobody is on fixed rates

lemonjelly

chucky wrote: »

a good balanced post lj - we are from from any financial armageddon like the usual suspects like to preach about

what i'd like to know is that if the UK is "on the edge of a financial abyss" - are other countries worse off than the UK financially in this imaginary abyss already?

Thank you chucky.

Difficult one to call.

I think that with the advent of globalisation over recent years, the differences between countries/economies is actually minimal. Personally I think the differences are more likely to be between blocks (for want of better phrases, between the developed world & developing world).

I appreciate that I see clients at the worst of times - however would tailor that with the apparent trend that it appears that over the past 2-3 years people have been approaching places for advice earlier. In example, january always used to be a very quiet month up to the very last week when the credit card bills hit the doormat & people realised how much they'd spent over christmas & in january sales). Recently that has changed - people started coming in december time to book appointments for january as they knew they were about to overspend, & wanted to get in there quick!

I feel it is generall accepted we need growth to facilitate a recovery. I really don't see where growth - & therefore investment is going to come from.

I also don't think we're going to have the swift changes (like the regular chopping of IR's) we saw over the past 18 months. I feel any recovery is going to be a lot more evolutionary and very very gradual.

Like I say, clients do tend to be in dire straits when I see them. Thing is, I have friends in decent jobs, with good pay. They are persistently talking about where they can make personal savings/spend less etc. So frugality appears to be spreading.

Emy1501

Really2 wrote: »

But mortgage rates now are higher than they were when base was 5.5%...

Do you honestly think that when base rate is 3% the average mortgage will be around 8.5-9%?

No one is saying it is fine but losing 20% of a average wage would have been a disaster for most average family's since...... well since people worked and got paid for a living.
It would cripple just as many renters...

Banks have lost out from those sitting on low SVR's. They will need to make their money back. Those on 4-5% trackers will see their interest rates rise in line with any rate rise as will many on SVR's. The majority of new mortgages last year were trackers. Also most people when they come to the end of any deal are on SVR's.

markharding557

I expect many are looking at cutting back in anticipation of tax rises and pay freeze/cuts.
This can only have an adverse effect on the economy.

Really2

Emy1501 wrote: »

Those on 4-5% trackers will see their interest rates rise in line with any rate rise as will many on SVR's. The majority of new mortgages last year were trackers. Also most people when they come to the end of any deal are on SVR's.

Do you think they will not move as soon as rates start to rise seeing they are unlikely to have any redemption penalty.

I am not aware of banks incurring losses on trackers or SVR TBH.