Millions of families’ homes at risk from shock interest rate rises or falls in property prices

By
James Coney
Last updated at 8:55 AM on 11th March 2010

Millions of families’ homes are at risk from shock interest rate rises or falls in property prices, Britain’s financial regulator warned yesterday.It fears that households who have failed to pay back debts could be pushed to the brink should the economic recovery falter.Under greatest threat are credit-hungry families who use credit cards and loans to keep up an affluent lifestyle, and young professionals who borrowed many times their income to get onto the property ladder.
FSA chairman Lord Adair Turner warned yesterday: ‘This recession is really quite different than the early 1990s’
In a bleak analysis, the Financial Services Authority forecast that any rise in unemployment, interest rates or a further crash in property prices could drastically slash the already stretched incomes of many middle class families.This would lead to them missing mortgage repayments, and eventually losing their homes.It will come as a timely warning to thousands of homeowners. Yesterday, it was reported how more than a million desperate borrowers are applying for credit cards with interest rates as high as 60 per cent.Many economists believe interest rates will start to rise at the end of this year. And this month Halifax and Nationwide both reported falls in the value of houses for the first time in more than a year.FSA chairman Lord Adair Turner warned yesterday: ‘This recession is really quite different than the early 1990s. ‘We have households which are more indebted than they were in the past and that creates a vulnerability.’

The FSA’s report examines the state of the economy, and sets out potential threats for households and businesses.The Bank of England base rate has been at a historic low of 0.5 per cent for one year. This has helped reduced the amount homeowners mortgage repayments by about £20 billion.Despite this families have failed to repay their debts, instead choosing to use spare cash to top up their pensions or invest in the stock market. Meanwhile the cost of borrowing on credit cards and loans has risen.And an estimated 4.7 million homes are still paying mortgage rates that are more than eight times higher than base rate.The City regulator said that as the economy recovers the Bank rate may need to increase to more ‘normal’ levels, such as those before the recession. This would ‘increase the cost of debt before household incomes have recovered fully.’ The report said: ‘The high level of debt income has left many households vulnerable to property price, income and interest rate shocks.’Figures from the Council of Mortgage Lenders show the number of repossessions soared to a 14 year high in 2009 as homeowners were battered by the recession. Around 46,000 people lost their homes throughout the year - an increase on 15 per cent on the previous year.However, this was well below the 75,000 that was first expected, mainly due to historically low interest rates and pressure on banks and building societies not to take people’s homes. Ed Stansfield, an economist with Capital Economics, said: ‘I think we could see a very long tail for arrears and repossessions with high numbers of people losing their home stretching back for many years to come.’People will realise that more of their income is being taken up by higher taxes or greater debt levels. ‘Any sudden changes in the economy will seriously widen out the number of people that are going to be affected.’In a further warning the FSA sounded alarm bells that desperate banks were forcing customers to buy expensive products in a bid to boost their own profits. Banks have seen their takings on current accounts stripped - so are resorting to flogging insurance and investments as a way of making extra money from customers.And the regulator warned that many consumers are gambling with their retirement savings in a frantic attempt to boost their income to the same level as before the recession.The report said: ‘They may be tempted to purchase products (and firms may seek to sell them) with the potential for greater return, but which are not suited to their individual circumstances or which are higher risk than they appreciate or desire.’

Share this article:

Read more

China’s Wen Jiabao says economic turnaround is not yet fundamental improvement

By Peter Foster in Beijing

Published: 9:04AM GMT 05 Mar 2010

Delivering his annual ‘state of the nation’ address, Mr Wen said that after
leading the world out of the global financial crisis China now faced a
“crucial year” in which it must curb inflation and lay the foundations for
stronger internal consumer demand.

“This is a crucial year for continuing to deal with the global financial
crisis,” Mr Wen said in a two-hour speech in the cavernous surroundings of
the Great Hall of the People in Beijing, “We still face a very complex
situation.”

Read more

Bank to announce interest rates

The Bank of England will announce later whether it will raise interest rates, but is expected to keep the cost of borrowing at a record low of 0.5%.The Bank is also expected to say it will not pump any more money into the economy under its quantitative easing (QE) programme, for now at least. Last month the Bank said it was halting the programme, having spent £200bn to boost the economy. It added the programme may be extended in the future, if needed. Record lowsThe Bank is unlikely to change interest rates, as any rise in the cost of borrowing could jeopardise the fragile economic recovery, economists believe. Figures released last week showed that the UK economy grew by 0.3% in the final three months of last year, compared with an initial estimate of 0.1% growth. But although the 0.3% growth in the final quarter of 2009 was stronger than previously thought, the Bank believes that continued economic growth is not yet guaranteed. The October to December period was the first quarter of growth following six consecutive quarters of economic decline - the longest period since comparable figures were first recorded in 1955. Interest rates were cut to stimulate growth and have now been at a record low of 0.5% for 11 consecutive months. Inflationary pressureThe Bank is also unlikely to pump more money into the economy this month. Under QE, the Bank has bought assets in order to boost lending to businesses and individuals by commercial banks. But the Bank has said that the full effects of QE will take more time to filter through to the economy. Many analysts argue that banks have not in fact increased lending as the economy begins to recover. Banks in turn argue that businesses are looking to pay down debt rather than take out new loans. Another reason why the Bank is unlikely to increase QE now is rising inflation. The latest figures, released last month, showed prices rising by 3.5% in January, the fastest annual pace for 14 months. This compares with 2.9% the previous month. As a result, the Bank‘s governor Mervyn King had to write a letter to the chancellor explaining why prices were rising so quickly. A letter from the governor is required if inflation is more than one percentage point above or below the government’s 2% target. However, Mr King said that the rise in inflation was temporary, and was largely the result of the rise in VAT to 17.5% in January. The government had reduced VAT to 15% to try and boost consumer spending.

Print Sponsor



Five Filters featured article: Chilcot Inquiry. Available tools: PDF Newspaper, Full Text RSS, Term Extraction.

Pound slides as figures underline scale of UK recession

Message from fivefilters.org: If you can, please donate to the full-text RSS service so we can continue developing it.



By Edmund Conway, Economics Editor


Published: 8:46PM GMT 26 Feb 2010

Comments 1

| Comment on this article

The broadest measure of sterling’s strength – the trade-weighted index
produced by the Bank of England – dropped to a four-month low, down from
78.6 points to 77.9, while the euro climbed to just beneath the 90 pence
mark, as economists mulled the fact that the ONS’s
second revision of GDP was far less promising than it at first
seemed.

In a press release entitled “Services growth in December pushes up GDP
estimate”, the
ONS reported that gross domestic product – the broadest measure of
overall economic performance – increased by 0.3pc in the final three months
of 2009, rather than the 0.1pc expansion it had previously estimated.
However, the revision, which was higher than most economists had expected,
reflected the fact that it also revised down growth in previous quarters,
meaning that the bounce was only sharper because it started from a lower
level.

Read more

Sales slump awakens spectre of recession

Message from fivefilters.org: If you can, please donate to the full-text RSS service so we can continue developing it.

The coldest winter since 1979 combined with the end of discounted VAT to send
high street sales plummeting in January, according to new figures.

The data from the Office for National Statistics has stoked fears that the
economy could be heading towards a double-dip recession.

Read more

UK housebuilding hits lowest since 1946

Message from fivefilters.org: If you can, please donate to the full-text RSS service so we can continue developing it.

Housebuilding fell to its lowest level for more than 60 years in 2009 - with
just 118,000 new homes completed, according to government figures.

The number is the lowest since 1946, when official records began and
represents a 17 per cent drop on the number completed in 2008.

Read more

MPC unanimous on halting emergency money

Message from fivefilters.org: If you can, please donate to the full-text RSS service so we can continue developing it.



By Angela Monaghan, Economics Reporter


Published: 6:45AM GMT 18 Feb 2010

Minutes
of the MPC’s February meeting showed members voted 9-0 not
to extend quantitative easing (QE), which effectively ended the £200bn
programme because the full amount had been spent on asset purchases by the
end of January.

Economists had predicted a split decision – with one member voting to
extend QE – given that the Bank’s latest Inflation Report last week assumed
inflation would be below the 2pc target for much of the three-year forecast
period.

Read more

Bank voted unanimously to halt money scheme

Message from fivefilters.org: If you can, please donate to the full-text RSS service so we can continue developing it.

The Bank of England’s rate-setting Monetary Policy Committee voted unanimously
earlier this month against expanding the Bank’s quantitative easing (QE)
programme, it was revealed this morning.

Minutes published by the Bank revealed that all nine members of the the
committee felt that leaving the size of the asset purchase programme
unchanged — at £200 billion — “were more persuasive”.

Read more

Greek bailout could hit £26bn, warn economists

Message from fivefilters.org: If you can, please donate to the full-text RSS service so we can continue developing it.

By
Mail Foreign Service
Last updated at 1:20 AM on 08th February 2010

Wolfgang Schaeuble, German Finance Minister, said Greece would have to make sacrifices
Bailing out Greece could cost £26billion, economists warned last night. A meeting of the G7 group of leading economies yesterday concluded that the EU stands to foot the bill to stop the Greek debt crisis dragging the euro down even further. The currency fell to its lowest level against the dollar in ten months on Friday amid fears that vulnerable economies such as Greece, Portugal and Spain could end up effectively bust. The pound rose sharply against the euro. Global stock markets also tumbled because of fears that the debt crisis will derail economic recovery. The European Central Bank and the International Monetary Fund previously said Athens would need £16billion to help stabilise the markets. But experts with Credit Suisse have said the cost would come to 30billion euros (£26billion) by May. The broker warned that even if the immediate danger can be overcome, the coming years will be fraught with difficulty. Portugal and Spain have also caused panic among investors, and economists fear the spotlight could soon turn to the UK, which has failed to tackle its huge budget deficit. Experts say Europe’s embattled economies must improve productivity, raise national savings and cut government borrowing. At the weekend, the European G7 countries told fellow members the U.S., Japan and Canada at a meeting in Iqaluit, Canada, that they would ensure Greece delivered on its pledge to drastically cut its budget deficit by 2012. The EU Commission has privately made it clear that it will bail Greece out if necessary-Greece’s debt has been rapidly increasing and stands at almost 13 per cent of the national economy. Despite a hands-off warning from G7 ministers, the IMF is ready to send a heavyweight workforce to help sort out Greece’s budgetary crisis. Observers said that had Greece been outside the eurozone, the IMF would have already become involved. Wolfgang Schaeuble, the German finance minister, said Greece would have to make sacrifices. ‘Greece has to realise that when you break the rules over a long period of time, you have to pay a high price,’ he said. Michael Woolfolk, senior currency analyst at Bank of New York Mellon, said: ‘What I think is needed is an agreement on behalf of the EU to provide further support for Greece to further ensure that it doesn’t default.’

Read more

Shares tumble and pound plummets as crisis looms for the Eurozone

Message from fivefilters.org: If you can, please donate to the full-text RSS service so we can continue developing it.

By
Lucy Farndon
Last updated at 1:01 AM on 06th February 2010

Stock markets tumbled worldwide yesterday amid fears that crippling debt levels in southern Europe could destabilise the euro and derail economic recovery. Portugal and Spain became the latest Eurozone countries to cause a panic among investors, as economists cast doubt on their ability to control their national debt. With Greece already expected to need a bail-out of up to £16billion from the European Central Bank, there are real concerns that the Eurozone may become unviable in its present form.

Enlarge

Read more

Next Page »