Debt management concerns as house price growth slows

08/02/2010

The rate at which house prices are rising slowed during January, prompting fears the continued reduction in property equity could lead to longer-term debt management problems.

According to Halifax's index, prices rose 0.6 per cent during the first month of 2010, which was the seventh consecutive monthly increase but also the smallest.

Average house prices in the UK are now 9.9 per cent higher than last April's low, however, and 3.6 per cent higher than a year ago.

While the Bank of England's base rate of interest remains at 0.5 per cent, keeping mortgage interest payments low for many homeowners, low house prices reduce the equity value of property and make it harder for households to use equity release or refinancing as a means to clear debt.

Martin Ellis, Halifax housing economist, said that the low base rate was boosting property demand from people with deposits saved but that supply remains low, which has pushed prices up. He added, however, a forecast increase in supply means "house prices will be flat in 2010".

The average house price now stands at £169,777, according to the index, £15,287 higher than that recorded in April 2009.

Director of EuroDebt Kevin Still commented: "For those with high-levels of unsecured debt, using low interest rates to clear debt is a more probable long-term strategy than re-mortgaging, as equity growth may take many years to re-adjust and any impairment on your credit file may affect the mortgage deal that you are offered.

"For those reliant on low interest rates then non-borrowing debt solutions may be applicable, like a Debt Management Plan (DMP), which doesn't put your home at risk."

Posted by Jim Mead

Tags; Housing Debt and Bills,

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