Families shift £60bn debt into high risk mortgages ~ Debt Managements and Consolidation

Record numbers of struggling families have moved more than £60 billion of mortgages into risky interest-only schemes.

As they try to keep spending under control, a massive 300,000 households have moved away from repayment over the past three years, according to statistics from the FSA.It is believed they are reacting to Bank of England governor Mervyn King’s recent comments, when he said Britain was going through the most dramatic squeeze on personal finances since the 1920s.Darren Winder, UK economist at Oriel, told The Daily Telegraph: “For someone who's trying to alleviate monthly cash flow pressure, moving to interest-only makes sense. But it does raise questions about how that loan gets repaid.”The average mortgage in the UK is £109,000 with borrowing at a rate of 3.5 per cent.Paying just the interest on a mortgage saves around £230 a month, which works out at £2,760 a year.This has alerted the FSA to consider whether it should 'constrain future interest-only lending' because much of it is unsustainable.Since the beginning of the recession until the final quarter of last year interest-only mortgages went up by £99 billion with the number of borrowers going up by 369,370.While some of those were new customers, the majority of them was because of 'forbearance' as banks help people avoid defaults by putting them onto more affordable payment plans.The increase in interest-only deals came at a time that banks cut the number of high-risk mortgages products.Mr Winder added: “Non-discretionary spending [such as food and petrol] is rising considerably more quickly than incomes. Therefore, there is a natural incentive to move to interest-only products.”
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