Recent reports in the UK have shown how unsustainably low mortgage rates may be giving home owners weak security, as experts warned that borrowers are relying more on cheap repayments and would be struggling if the Bank of England’s base rate increases.
Top UK economist Danny Gabay has pointed out that the nation would not recover until both the financial services industry and the government deal with home borrowers who have taken out mortgage loans beyond their means.
A report published by the Council of Mortgage Lenders (CML) showed that nearly 50 percent of the total 11.5 million households with home loans could be affected by changes to the mortgage market that the Financial Services Authority (FSA) are planning to implement. It noted that 2.2 million people, or about 20 percent will be unable to secure future loans or remortgages as the new rule will not qualify them to do so, while the remaining 30 percent or around 3.4 million people would only be able to borrow a lower amount than they currently have on their mortgage.
The report also highlighted that many home owners will likely become “mortgage prisoners”, as the new rules would mean that most of the home borrowers would be unable to remortgage their current loan or obtain new loans in the future.
Michael Coogan of the CMA called the plans “an over reaction to past problems.”
“As a consequence, (lenders) will not lend to as broad a range of potential customers,” he said,
Drew Wotherspoon, director of marketing at John Charcol, also said: “This tells us that people are finally considering their options and are no longer content to simply sit on their lender’s standard variable rate (SVR). It is certainly encouraging that consumers are keeping on top of their options. With some excellent mortgages now available, it could well be precisely the right time for many to move their mortgage.”