While few people may be aware of the term ‘mortgage prisoner’ at the present time, this could change in the near future. The term relates to someone who cannot afford to get a new mortgage or to move to somewhere more desirable than their current location. A mortgage prisoner will also find they have continuing difficulty in paying their existing mortgage. Thus they are a prisoner of their circumstances and of their mortgage.
Why are mortgage prisoners set to become more common?
At present we are enjoying a very low interest rate of just 0.5%. However this is set to increase – if only gradually – in the coming months. No one is certain when the increases will begin but after a prolonged period of low interest rates many people have become used to seeing them. This means many people have got used to paying low rates on their mortgage – and this will change very soon.
As the interest rate goes up, even if only by a small amount, we can expect to see an increase in the percentage of mortgage prisoners in the UK.
How many people could be in trouble?
Back in 2005 a mere 10% of people said they were having trouble paying their mortgage. At this point in time the interest rate was set at 4.5%, having been reduced from 4.75% on 4th August.
Today however, some 20% of homeowners are saying the same thing – and yet we have an interest rate of just 0.5%. If the rate was to increase to 4.5% again now (not something that would happen quickly) many home owners would be in serious trouble with their repayments.
Complacent over rate rises
Many experts believe people are complacent over the interest rate we have at the moment. It is worrying that some people do not believe they could find themselves as mortgage prisoners. It is thought to be unsustainable if more than 50% of take-home pay went towards mortgage payments, before any other bills were taken into account. However the Resolution Foundation think-tank believes that some 1.1 million mortgage holders would find themselves in this position if interest rates were to reach approximately 2.9% within the next four years. This is still significantly lower than the 4.5% interest rate we saw back in 2005.
Could we see a new round of repossessions in the near future?
Certainly, many people are in a precarious position with their mortgage payments. Some are already struggling – even the smallest increase would undoubtedly tip them over the edge. Many others are in tough positions now, but these positions will be even harder to sustain if and when the rates start to rise.
Clearly there are tougher times coming for those on stagnant incomes with mortgages that could potentially cause them concern. Some people are unaware of their situation and perhaps will not be for some time. Still more know where they stand but cannot do anything about it. Thus the mortgage prisoner seems set to be here to stay.