Mortgage Debt Danger
Soaring mortgage interest is crippling Brits adding greater burden to debt problems for the average household, a thinktank has warned.While families struggle to keep up with rising tax, energy and other bills, the average income is not going up at the same rate according to the Centre of Policy Studies.
It said the total debt, including mortgages, per household has increased by a huge 63 per cent from £24,019 in 2002 to £55,554 between July and September 2007.
And household debt, as a proportion of household income, has risen from 66 per cent from ten years ago to 108 per cent today, the centre-right thinktank said in its report entitled Why Do We Feel So Broke?
Report author, Charlie Elphicke, said the increase had been so dramatic it had left many households exposed to any significant interest rates.
His research shows the problem has only arisen recently. Mortgages were far more affordable five years ago and prices remained around the same level until 2005.
However a radical change in 2007 saw the effective cost of a mortgage compared to gross household income rising by 25 per cent. According to the study this meant a £3,000 mortgage annual interest cost in 2006 had become a £4,000 annual interest cost by the third quarter of 2007.
It's not just mortgages which are crippling households – the rise in credit debt is also playing a role. However Mr Elphicke said the level of debt in general has meant that households are not as prepared for more difficult times as they might otherwise be.
"The combination of stagnating earnings, sharp increases in tax, excessive debt, rising effective interest rates and growing household running costs means that British households are more vulnerable, and less prepared for, any economic downturn," he said.
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