UK Debt Part II: Foreclosures, Rate Hikes, High Prices Don’t Stop Borrowers
September 13 2007
Source: CreditandCollectionsWorld.com and SourceMedia, Inc.
More than 14,000 properties in the United Kingdom were foreclosed on by lenders during the first half of 2007, jumping nearly 30% compared with same six months of 2006, reports Credit Action, a national nonprofit personal-finance education organization.
The number of mortgages delinquent by 90+ days at the end of June 2007 was 125,100, up 4% compared with the end of December 2006. The average outstanding mortgage balance due for the 11.8 million households that currently hold mortgages is $198,218, according to the organization.
Borrowing costs hit a six-year high in July when the Bank of England raised the interest rate to 5.75%; it was the fifth increase in 12 months. The average loan approved for a house purchase in August 2007 was $313,512, 9% higher than a year earlier. A typical two-income British couple buying their first property in the fourth quarter of 2006 would have had to commit 34% of their take-home pay to meet their initial mortgage payments, the highest level since 1990, Credit Action reports.
The average house price in the England in July stood at $460,770. Annualized inflation of housing prices was 12.4% through summer but prices fell 2.6% in September. Over the next 18 months, nearly 2 million borrowers in the UK will see their fixed-rate mortgage loan terms expire and they will have to budget at least $200 per month more than they currently set aside, or they’ll need to refinance.
Yet more risky mortgage products are still popular: 35% of mortgages originated in July were interest-only loans, vs. 12% that were interest-only in July 2003. And 27% of these I/O loans were originated without a specified repayment plan for the principal.
Banks and building societies will lend out £1 billion a day during 2007 in the biggest-ever home loan bonanza in Britain, Credit Action reports. The Council of Mortgage Lenders said 2007 will be a record year with £360 billion borrowed in mortgages.