Saturday, 16 June 2007

UK households reach breaking point.

It is only a matter of time, friends, only a matter of time,

The UK housing market is on the edge of an almighty crash. All it will take is one more interest rate hike and that will be enough to push many UK households over the end and into the abyss. That is the shocking but accurate assessment of the personal finance website

Read on, and be afraid.

Household finances in British homes are at breaking point. With virtually no safety margin in the average household budget, a further rise in interest rates could tip many homeowners over the edge, according to a study by personal finance website .

Currently, the gross income of the average household in the UK is £32,800. This equates to a net income of £,700 after adjusting for the receipt of benefits and the deduction of direct and indirect taxes. While this comfortably exceeds average household expenditure of £20,800 before mortgage payments, it only tells part of the story.

The single largest item of expenditure for most households is mortgage payments. At around £6,600 a year, mortgage payments account for almost a quarter of total household expenses in the average UK home. As the average outstanding mortgage is £95,900, this would suggest that, on the whole, homeowners may still be benefiting from historically low interest rates fixed at around 4.8%.

However, after deducting total outgoings from total income, the average household does not have any slack in its budget. In fact, there is a small shortfall of around £50 a month.

Over the short-term this is manageable. But with typical standard variable rates of 7.5% , homeowners could face a hefty shortfall of around £1,900 a year when their fixed-rate mortgage deals expire. Furthermore, around 15 million households on below-average income may be disproportionately affected.

1 comment:

Anonymous said...

For some reason, this article reminded me of the advice that Mr. Micawber gave to David Copperfield about the dangers of debt.

So, average income in the UK is about 32 grand, but average house prices are over 200 grand. That seems like an open-and-shut case of real estate overvaluation.