Average outstanding UK mortgage is £100,000
Homeowners in the UK have an average balance of almost £100,000 outstanding on their mortgage, according to exclusive new research.
The findings, from the Moneywise Consumer Opinion Survey of 20,000 people, reveal that the average outstanding home loan stands at £95,883.
The findings also indicate that 68% of people are happy with their existing mortgage interest rate, while 13.4% will be re-mortgaging in the next year – but 1 in 5 people (18.5%) did not know if they would need to remortgage or not in the next 12 months.
The average mortgage balance offers a glimpse into the size of loan British households are trying to service at present – a time when inflation is easily outstripping wage growth.
The latest labour market figures from the Office for National Statistics indicate that annual wage growth stood at 0.8% in the first quarter of 2013 compared to the same period of 2012, while inflation is currently 2.8%. This means people's real take-home pay is being seriously eroded by the cost of living.
Stepchange Debt Charity said it was particularly concerned at the number of older people seeking its help who still have mortgages outstanding. The average mortgage arrears for over 60s increased from £3,563 in 2009 to £3,998 last year – that would represent just under 5% of Moneywise readers' outstanding mortgage balance.
If mortgage rates were to rise, debt charities warn that greater numbers of cash-strapped households with outstanding mortgage balances will fall into arrears.
David Hollingworth, mortgage expert at London & Country, says that with an average standard variable rate of 4.75% on a repayment mortgage of £95,883 over 20 years, monthly repayments would be £619.62. These would rise by £54 to £673.18 if the SVR were to increase by 1 percentage point. But if the SVR rose by 2 percentage points, the mortgage repayments would rise by almost £110 to £729.06 a month.
To put that in context, recent research from Halifax showed that half of all households (46%) would struggle if they had to find another £99 a month in their budget; one in four (26%) would be stretched by an increase of £49; while 13% said finding just £24 a month more in their budget would leave them stretched.
The results of the Consumer Opinion Survey have been used to crunch the shortlist for the Moneywise Customer Service Awards 2013 – at which Britain's most trusted mortgage provider will be announced on June 13th. The shortlist can be viewed here.
Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
A “traditional” mortgage, where the monthly repayments entail of repaying the capital amount borrowed as well as the accrued interest, so that during the loan period the capital debt is gradually paid off so by the end of the term the mortgage has been fully repaid. One advantage of a repayment mortgage is that it removes the risk of having a parallel investment (such as an endowment policy or pension), the performance of which is dependent on the stockmarket, such as with an interest-only mortgage.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.