UK borrowers at the mercy of their lender

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by Kay Murchie

UK borrowers are at the mercy of their lender as they are overstretching themselves on their mortgage.

A survey by Moneynet.co.uk has established that almost 35% of respondents are struggling with a mortgage which is over 3 times their gross annual salary. Of the 35%, 30% are unsure whether they would be able to provide evidence of their income to a new lender. Both factors could seriously jeopardise their ability to secure affordable loans in the future.

These borrowers are particularly vulnerable to falling house prices with the spectre of negative equity hanging over them. Almost 4% are already in that category having borrowed more than 100% of what their property is worth.

Richard Brown of Moneynet.co.uk said many of these borrowers are likely to find it very difficult to re-mortgage now that the days of easy borrowing are over.

Lenders are tightening their lending criteria as a direct consequence of the turmoil in the money markets. Lenders are saving their best deals for the lowest risk borrowers - those who have built up huge amounts of equity in their homes or have substantial deposits to put down.

Consequently, borrowers who have overstretched themselves have no choice but to accept what their present lender is prepared to offer when their current deal expires.

Approximately 3 million borrowers are due to refinance cheap fixed-term loans this year, many with interest-rates well below 5%. Many will have to accept deals at least a full percentage point more expensive, adding hundreds of pounds to their mortgage bills.

Mr Brown added almost 10% of respondents admitted that they reckon they are at risk of missing mortgage payments in the next few months with 22% considering using other means of credit to meet their mortgage repayments.

The determination of UK borrowers to hang on to their hard-earned homes by using a credit card, loan or overdraft to prevent repossession is understandable but this strategy could lead many deeper and deeper into debt, concluded Mr Brown.

Those struggling with mortgage payments or other debt are advised to seek help as soon as possible. Organisations such as Citizens Advice or The Consumer Credit Counselling Service can help.