The media are fond of reporting any suggestion of a crisis in the UK mortgage market and property market with the implication that millions of home owners will have problems paying off the debt secured on their homes. Of particular concern are those with interest only mortgages who will not have the assets available when the time comes to pay back the debt and that inflation will cause disposable income to drop.
However, is the situation really as bad as it is portrayed? Should borrowers be overly concerned about their large mortgage debts or will the problem of excessive mortgage debt affect only a minority of borrowers? Certainly with interest rates at an all time low the cost of servicing a large mortgage has rarely been cheaper so there is the choice to overpay while rates remain low, but how many people take advantage of this option?
The Office of National Statistics reported last year that property debt in the UK was a staggering £847.9 billion, but further studies have revealed that most home owners are not worried by this large mortgage debt.
Less than 15 per cent of people believe that their mortgage debt is too large a burden whereas almost 50 per cent of the British population think the debt secured on their home is ‘no problem at all’. These figures are an indication that, on the whole, the amount of property debt in the UK is not of undue concern.
This can, of course, in a large part be attributed to ongoing low interest rates which make the cost of servicing a large mortgage much easier to bear. But that is not to say that there is excessive debt is a relatively small number of households. However, looking at the wider picture, less than 40 per cent of households had any outstanding debt at all on their home and 50 per cent of those with who do have debt owe less £75,000.
The largest mortgages are, not surprisingly, to be found in London and the South East where house prices are substantially higher than many other parts of the country. But the flip side of that is that London is also the most prosperous area with string economic growth and rising house prices, even during the recession. It is also worth pointing out that the UK is still a very wealthy country and that amount of debt on properties is far less than the amount of equity that home owners have on the whole. It is no uncommon for assets to be many times greater than the debt, which explains why those with a large mortgage are often not concerned about their ability to pay it off, especially those who have owned a home since well before the start of the economic slump.
With the vast majority of borrowers unconcerned by the levels their property debt, even those with large mortgages or even million pound mortgages or more, and with interest rates at rock bottom, home owners are, in fact, benefiting from some very competitive deals. Coupled with the fact that house prices have continued to rise in London and the South East it is not surprising that many people are not worried by their debts.