One million UK homeowners to see 30% increase in loan payments

As storm clouds gather and the UK suffers unseasonably bad weather, reading the press over the last few days it seems that further bad news is on the way. Is it just a gloomy time of the year or did the UK have it too good for too long? Is Gordon Brown about to reap that that he sowed?

From the FT today…

Up to a million homeowners could see their mortgage repayments jump by almost a third in the next 12 months as they approach the end of cut-price mortgage deals.

Four interest rate hikes in the past 10 months mean that borrowers are now facing a ticking time bomb as they near the end of two- and three-year fixed-rate mortgages taken out in 2005, which are now poised to shift on to more expensive rates. The problem is also backloaded to the end of this year because there were a number of good deals around in the latter half of 2005 after the rate cut in August of that year. About £200bn of mortgages – approximately 20 per cent of the UK mortgage market – moved onto fixed-rate deals in 2005, according to new research by analysts at Credit Suisse. Credit Suisse estimated a large chunk of these mortgages would be written on two- or three-year fixed-rate deals because these were the most commonplace in the market. Jonathan Pierce, banks analyst at Credit Suisse said these fixed-rate mortgages were now coming to the end of their deals and up to a million households could face higher payments. “For some customers we see a 25-30 per cent increase in interest payments,” he said.

He said the payment shock could lead to higher arrears as more consumers who might have overstretched themselves to get onto the housing ladder struggled with the increased payments.

In some cases consumers could find themselves paying hundreds of pounds more per month.

Our observation is that over the last few years the financial press have been complicit in deluding the man-in-the-street about the real costs of and risks borrowing well beyond their means. Well it seems that the turkey has come home to roost. With interest rates unlikely to fall in the next year and with inflation still heading upwards, we seem to be heading for the ‘perfect storm’.

The Bank of England may later this year find itself unable to react to head off a recession starting towards the end of the year … there, we said it. More about that in a later article.

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