Families shift £60bn debt into high risk mortgages

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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Mortgages & Debt

Being in debt is scary enough, but when you have a property there can be added pressure on you. Today I want to talk about mortgages, and debt and how they come together.

Your mortgage will most probably be the biggest debt you will ever have. You will have your repayments set out for you at the beginning and you will know what interest you will pay towards this. Depending on the type of mortgage, your interest will either be fixed at a set rate for a certain length of time or will be variable but linked more or less to Bank base rates.

As well as being the biggest debt, it will often also involve the largest single, regular outgoing in your household budget and should always be paid as there are serious consequences.

In order to manage your debt you need to start by prioritising what needs to be paid. If you have a mortgage then your monthly payment will always the first thing that you need to pay. After that you need to pay any secured loans or hire purchase agreements. Any other debts will then come after.

I know that this might seem like I am stating the obvious but from my past experience when it comes to paying your debts it is usually ?whoever shouts the loudest? gets your money. For example, if you have a credit card or a loan and you miss a payment they will always contact you straight away and demand money from you. They will also add interest and charges on straight away for missing a payment of sending a late payment. Whereas, if you miss a mortgage payment it can take them a couple of months to process the missed payment and to take the necessary action.

By doing this you may avoid the initial hassle of not missing a credit card payment but by missing a mortgage payment you face more serious consequences.? You may think that you can make up the missed mortgage payment, but in reality it is often harder to catch up once you are in arrears with payments than you might at first think, this is because you will not only have your usual monthly expenditure to pay, including your usual mortgage payments, you will also have your creditor payments that you need to keep making as well as extra to your mortgage to cover the arrears

If you are in arrears with your mortgage then the best thing for you to do is contact your mortgage company straight away and reach an early, workable agreement with your lender. If you have fallen into arrears because you are struggling with your debts then seek free impartial advice to help with setting up a plan with your creditors.
If you are struggling with debts then please call Payplan on 0800 2802816.

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