Large proportion of income goes on mortgage repayments

According to some industry officials many homeowners are having to spend a large proportion of their income on mortgage repayments, and this is increasing the chances of a major housing slump occurring in the UK.

A recent study was carried out by Capital Economics, and the results showed that some homeowners are spending up to a third of their total income on mortgage repayments.

Officials state that the current level of income that is being spent on mortgage repayments is even higher than the previous peak that was seen in the 1980s. One of the officials that was involved in the study stated that the situation had reached a point whereby it could result in a housing crash similar to the one in the 1990s.

The research indicated that new borrowers taking out a mortgage loan over a twenty five year repayment period could be paying around 32% of their income on mortgage repayments. This means that the amount that homeowners are now paying on their mortgage repayments is around one fifth higher than the amount that they were paying in the 1980s.

Between August 2006 and July 2007 there were five interest rate rises of 0.25% each, and this took the base rate up to 5.75%. However, during the past four months interest rates have fallen three times, again by 0.25% each, and this has taken the base rate down to 5%.

However, despite these interest rate cuts many lenders are hiking up rates on their mortgages for new customers due to the global credit crunch, and some are failing to pass on the full base rate cuts to existing borrowers, which means that many are still paying out huge levels of their income on mortgage repayments.