John Charcol has said there is no reason for concern, as unmortgaged property wealth is three times as high and consumer confidence is up.
Drew Wotherspoon, of John Charcol, commented: “While £1 trillion in mortgage debt is a huge sum, when you consider the fact that there is an unmortgaged property wealth of around £3.6 trillion, this means that the UK’s loan-to-value (LTV) is a mere 22 per cent, which is healthy to say the least. While the amount of mortgage lending has been pushed up by the boom in house prices, there is little to suggest that consumers are saddling themselves with mortgages that they can’t afford.
“Approval figures for May are at record levels, proving that despite previous fears of a crash in house prices, the market has picked itself up and the appetite for home ownership among consumers is firmly back on track. I see no reason for this confidence to subside and would anticipate its continuation for the remainder of this year.”
Louise Cuming, head of mortgages at moneysupermarket.com, said: “The increased flexibility of affordability models has allowed for very full borrowing figures, as seen in the statistics released by the Bank of England. But despite the massive debt figure, it isn’t all doom and gloom for homeowners as it would appear that wages have moved in-line with house prices. According to figures from the Council of Mortgage Lenders (CML) the average person taking out a mortgage during 2005 spent just 14.6 per cent of their income on interest payments, compared with the 25.8 per cent of their pay people needed in 1990, signifying that affordability is better now than 15 years ago.
“On the flipside, what we should be wary of is the £3.6 trillion worth of unmortgaged equity tied up in peoples properties. This, along with the lower levels of borrowing against income, could fuel an increase in released equity, which could upset the balance of the economy, or allow people increasingly to replace unsecured debt with secured borrowing which is often more expensive over the long term and obviously puts their property at risk.”
