Low SVRs 'could store up problems for later'

25/02/2009

Advisers have issued a warning for homeowners looking to take advantage of low SVRs from UK mortgage firms

Independent Financial Advisers (IFAs) fear that repossessions rates will shoot up even after the worst of the economic downturn is over.

House prices plunged 15 per cent last year and tight credit conditions helped push 40,000 Britons into the proceedings.

This figure is expected to double in 2009, according to some estimates.

However, IFAs talking to FT Adviser suggested that the increase in the number of people losing their homes could be even be maintained into the following year.

A key source of future financial strain is the Bank of England's lending rate, which is currently at an all-time low.

This has led to many lenders bringing their standard variable rates (SVRs) down to well under five per cent, making them attractive to homebuyers.

However, taking out a mortgage at this rate could prove a risky strategy when the Bank starts to hike its base rate as the economy starts to recover this year or next - and the changes are reflected by the lenders.

Kelvin Lillywhite, an IFA with Albany Financial Consultants, told the news source: "We're seeing a lot of clients staying on SVRs [which] are currently attractive.

"But what happens when we start to pull out of the recession and interest rates are increased? [It] could mean, as we start to get out of this [recession], another problem is thrust upon us with lots of repossessions as those on SVRs see their monthly repayments creep up and up."

Chris Hulme, director of the Clayton Hulme Partnership, said: "These clients will be even more affected by rate increases, further damaging the housing market and adding to the post crash wave of repossessions."

Kevin Still, director at EuroDebt, added: "We have seen a very significant shift in the number of clients who are homeowners looking for help from debt management in the last six months.

"The fact that 21 per cent of these are already in arrears is extremely worrying, as paying the mortgage should be the highest priority for homeowners."

Tags; Housing Debt and Bills, Young Family Finances,

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