The Bank of England has warned homeowners could be hit hard as interest rates increase mortgage repayments.
Research conducted by the Bank of England has shown the average household debt is £87,000 and a rise in interest rates would have a significant impact.
Current interest rates are only 0.5% with the Bank estimate a rise to 3% doubling the number of homeowners that are vulnerable mortgage borrowers and this would be particularly acute if average earnings did not increase.
For remortgage buyers currently on their lenders standard variable rate, to reduce costs they can switch to a new mortgage deal helping them with lower monthly repayments.
Earnings not rising against house prices
The Halifax says house price inflation is at 7.7% for the year but average earnings are rising at only 0.8%, over nine times higher.
The average house price is now at £174,910 up by £13,577 over the year.
A combination of higher prices and interest rates would make it very difficult for first time buyers to own a home.
Even so, according to the Council of Mortgage Lenders (CML) mortgage lending is up 30% on the year to November.
For older homeowners there is higher activity with equity release mortgage buyers accessing wealth in their property to improve their quality of life, pay for care at home or even pay university fees for grandchildren.
Homeowners remain cautious
The bank of England governor Mark Carney has stated he would not increase interest rates until unemployment is below 7% which would be in 2015.
Homeowners are resisting equity withdrawals from house price gains to make other purchases with £10.4 billion of equity injected into UK homes in the third quarter, according to Bank data.
Home movers wanting to trade up when prices are rising will find their next property is more expensive which means they need a larger deposit or mortgage and higher monthly repayments.
This is in contrast to the boom before the financial crisis in 2007. The data suggests homeowners are cautious about the future and the possible higher cost of mortgage repayments increasing their debts.
What are your next steps?
Talk to our London City Mortgage brokers for advice if you remortgage your existing home and want the best mortgage deal or release capital, buying your first home, moving home or are a buy-to-let investor.
Start with a free mortgage quote or call us and we can take your details. Learn more by using the equity release calculator, mortgage cost calculators, and property value tracker chart.
For older homeowners releasing equity from your property, our LCM mortgage advisers can recommend the lifetime mortgage, accessing wealth to maintain your lifestyle or even buy a more expensive home.
Use your dashboard to access online mortgage quotes, money off vouchers and start your mortgage application online 24/7 on desktop, tablet or smartphone.
