Debt charity warns of rise in mortgage arrears
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National debt charity Consumer Credit Counselling Service has warned that many homeowners will struggle to keep the roof over their heads this year.
CCCS says that budget pressures such as high inflation and wage freezes are restricting the ability of many to pay their mortgages
It says that an interest rate rise will push many homeowners into arrears.
Many homeowners are already struggling, with the charity counselling 90,000 homeowners last year, who owe an average of £30,160 in unsecured debt on top of their mortgage.
While calls to CCCS’s mortgage counselling centre were down almost 70 percent in 2010, CCCS says this reflects the generally low mortgage interest rates that have persisted over the past two years. It predicts that this trend will reverse once interest rates rise again.
To highlight the impact of an interest rate rise, CCCS undertook research on its homeowning clients which found that a two percent increase in mortgage rates will lead to a £307 rise in monthly mortgage payments by its clients across the country.
As the average mortgage payment of a CCCS client is currently £561.61, this would be a 55 percent increase in monthly mortgage payments, meaning that homeowning clients would have to spend almost £3,700 more a year.
CCCS is also concerned that struggling debtors are using credit cards to pay their mortgages. If this is the case, interest rate rises in 2011 could have an immediate impact on homeowners’ ability to pay their mortgage.
Delroy Corinaldi, external affairs director at CCCS, says: “So many households are just managing to make ends meet, that even a small increase in the cost of their mortgage may push them over the edge. As far as possible, families need to think how they could pay such increases and seek help at the earliest opportunity if they feel that they cannot cope.”
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Readers' comments (3)
JF Financial Associates | 6 Apr 2011 2:49 pm
I work closely with financially vulnerable clients and have to concur with CCCS. These clients have held their hands up and have sought help and advice from CCCS or other debt advice charities / agencies. Most of them are now in a stable position and are paying off their unsecured debts by way of an arrangement (be it a DMP or IVA). As long as the variable rate stays the same they will be ok. However if they are on a variable rate that is going to go up in the near future, this is a recipe for disaster for all these clients.
I have been campaigning for the last 2 years for more lenders to consider helping these clients on repayment plans. If we can give them a stable environment in which to repay their mortgage, then they can budget accordingly and also focus (with the help of CCCS or other debt advice charities / agencies) on paying off their other unsecured debts. Everyone is a winner, especially the lenders and creditors!
If however the lenders keep their heads buried in the sand and don't start offering medium to long term fixed rates to help these vulnerable clients, then once rates start to move and affordability goes out the window. The chances are these clients will start to miss payments to their unsecured creditors and inevitably their mortgages!
The ironic thing is most of the mortgage lenders (Banks), have also lent these clients unsecured credit as well! So it will be a lose - lose situation for the lenders!!
This is not rocket science, give these clients a stable environment to be able to budget within (i.e. 3-5 year fixed rate re-mortgages) and they will have a much better chance of repaying the mortgage as well as your unsecured debts in due course!
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JF Financial Associates | 6 Apr 2011 2:51 pm
I have been campaigning for the last 2 years for more lenders to consider helping these clients on repayment plans. If we can give them a stable environment in which to repay their mortgage, then they can budget accordingly and also focus (with the help of CCCS or other debt advice charities / agencies) on paying off their other unsecured debts. Everyone is a winner, especially the lenders and creditors!
If however the lenders keep their heads buried in the sand and don't start offering medium to long term fixed rates to help these vulnerable clients, then once rates start to move and affordability goes out the window. The chances are these clients will start to miss payments to their unsecured creditors and inevitably their mortgages!
The ironic thing is most of the mortgage lenders (Banks), have also lent these clients unsecured credit as well! So it will be a lose - lose situation for the lenders!!
This is not rocket science, give these clients a stable environment to be able to budget within (i.e. 3-5 year fixed rate re-mortgages) and they will have a much better chance of repaying the mortgage as well as your unsecured debts in due course!
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Anonymous | 6 Apr 2011 3:27 pm
Nice idea JP - I guess the problem in a lot of cases is securitised mortgages that never allowed for retention rates etc.
Also (and I totally understand your loss mitigation argument for lenders) but it could mean offering a fixed rate equivilent to the current variable/tracker to keep it affordable.....we could be talking BBR plus 0.49% - 1.09% fixed for 5 years (I want some of that action)!!!
And therein is another problem.....are you treating customers fairly by offering someone who is struggling a lower rate just because they are struggling - why should Bob who's struggling get a lower rate to Jim who's worked hard to protect his position and is bang up to date but has a 5% fixed.
All good ideas but unfortunatley this joke of a world that we live in shoots them down.
Lender forebareance is slowly germinating but what I've seen of it in the large it has no real results other than helping to sell........many many people still bought houses/cars etc on the 'never never' and ultimately they can't afford it in the long run.
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