Britons slash mortgage debts

05/10/2009

People in Britain reduced their mortgage debt by £7 billion in the second quarter of the year, new figures from the Bank of England have shown.

The statistics broadly mirror those from the first three months of the year, when more than £7.3 billion was wiped off mortgage debts as people became more concerned about the amount of money they owed.

Falling house prices coupled with other effects of the recession put many consumers off releasing equity from their homes to fund large purchases, with the onus shifting to clearing debts and financial prudence, the Bank's figures show.

They also reveal that households spent the equivalent of 2.9 per cent of their post-tax income on reducing their mortgage debts, which is a far cry from the record £17.09 billion of equity which was released by homeowners in the final quarter of 2003.

Debt solutions firm EuroDebt says that for those households that can afford to repay their mortgage faster then this is a very encouraging sign, however, for many struggling with secured borrowing repayments the reduced interest rates have probably delayed the point when there will be a serious squeeze on disposable income.

When interest rates start to rise and household costs continue rise at a rate above that of wages or salary then homeowners may move from a position of just about coping to being in an unmanageable debt situation.

To some extent the lack of borrowing options means that many will need to negotiate with both secured and unsecured creditors to reach an affordable solution.

Debt solutions like Debt Management Plan'>Debt Management Plans and IVAs are very popular because they provide a managed service with a single affordable payment per month to the Debt Management Company who promptly distributes pro rata payments to all the listed creditors.

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