If you want to understand why the UK housing market will crash, just consider the plight of Mr and Mrs Campbell, who told their sorry story to the Times last week.
Both have solid middle class jobs, just judging by their stretched finances, they are on the verge of default. If people like these can not cope with their mortgage, then the implication is clear - a wave of personal defaults is about to hit the banking system. When that happens, the housing market will come crashing down.
It is coming, people, the correction is coming.
We’ll never pay off the mortgage
Isabelle Campbell and her husband, Jason, face a dilemna common to many young couples. Both are in good jobs, in accountancy and teaching respectively, and their joint income is a healthy £60,000 a year.
But a combination of Isabelle’s debts from her student days and the couple’s scramble to get on the property ladder has left their finances stretched. Isabelle, 23, says: “We want to have children but cannot see how we would be able to afford it.”
The biggest hole in their budget is the monthly payment on their £190,000 interest-only mortgage with Scottish Widows. Their two-year deal, taken out in January and fixed at 5.74 per cent, takes £900 out of their joint net monthly income of approximately £3,500.
What’s more, Isabelle and Jason, 34, had to take out a 100 per cent mortgage to secure their two-bedroom flat on a riverside development in Woolwich, in southeast London, now worth an estimated £225,000.
Isabelle says: “My biggest concern is how we are going to pay off our mortgage. It horrifies me to think that at the end of the mortgage’s 25-year term we could still owe £190,000.”
Overpayments of up to 10 per cent a year to cut the mortgage debt are permitted, but only after the initial two-year term ends in January 2009.
One way for the couple to ease the financial strain is to cut down on their monthly outgoings of about £3,100. Apart from the £900 mortgage payment, the biggest monthly outgoings are a £500 contribution to a cash Isa, £300 on food, £200 on repayment of a work loan, £200 on socialising, £120 on coffee and lunches and £100 each on train travel and hire purchase payments on the couple’s car, with a further £30 a month on petrol.
Council tax, service charges for the flat, electricity and phone bills soak up £400 between them, with the biggest bill being £90 for the couple’s mobile phones. Other monthly outgoings include £15 for the internet, £15 for magazine and film subscriptions, £12 for a TV licence and £42 for Isabelle’s gym membership. She adds: “I also spend on clothes and shoes, though I can’t easily quantify it