More than one million homeowners have mortgages worth four-and-a-half times more than their income, according to new figures but rules brought in in 2014 may reduce this for future borrowing.
New figures from the Office for National Statistics reveal how much mortgage debt households are actually sitting on, and the data is quite shocking.
More than 1.1 million households were saddled with mortgage debt worth four and a half times more than their income in 2013, which was slightly less than 2011, but still a concern. This means that almost one in seven mortgaged households were burdened with a large amount of debt.
The figures from the ONS paint a picture that suggests that some mortgage borrowers could be at risk if the Bank of England decides to hike interest rates, as they may no longer be able to afford to live in their homes.
Unsurprisingly, one quarter of these households were located in London, while a further 27% were in the south east demonstrating how unaffordable the capital is becoming when it comes to buying property.
Speaking to the Guardian, Matthew Whittaker, the chief economist at the Resolution Foundation thinktank, said that it is worrying that the number of homeowners sitting on mortgage debt that is high compared to their earnings has only fallen slightly between 2011 and 2013, as interest rates have been at record lows.
He explained that now a rate rise is high on the agenda `it`s vital that banks engage with their customers to explain how their mortgage repayments could rise`.
Since the financial crash of 2008, there have been a host of new regulations and rules passed to ensure mortgage lending becomes tighter so people are not given more money than they can feasibly pay back.
In April 2014, tougher rules were enforced under the Mortgage Market Review, which forced lenders to check the spending habits of homebuyers and those looking to remortgage their homes to ensure that any loans issued were actually affordable.
They are also now obliged to apply `stress tests` to applications to see if the monthly repayments would still be easily paid if interest rates were to increase.
Interest rates have been a hot issue for many, which can be seen in the fact that many people have rushed to get cheap mortgages before they disappear from the market, as rumours suggest the Bank of England is poised to hike rates.
For those worried about what will happen and seeking payment stability before the Bank Of England does pull the trigger, it could be time to look around to see if there is a better deal elsewhere.
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