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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: biometricgngboy who wrote (15147)	11/16/2003 8:49:27 AM
From: biometricgngboy	Read Replies (1) \| Respond to of 306849

(Today's new phrase: "serial debt consolidator') Iceberg ahead for the debt-ridden millions THERE has been no irresponsible lending. We are not about to witness an implosion of the housing market, flooded by the properties of overstretched borrowers who can no longer afford their mortgage repayments and so have been either forced to sell up or may have had their properties repossessed and the banks who are trying to recoup losses by selling. No, mortgage providers and government alike are keen to talk down the prospect of widescale forced selling. They say that homeowners are borrowing well within their means and the all-important income-to-mortgage debt ratio is nowhere near the level it was at the time of the last property crash. Mortgage payments as a proportion of household income were just 18.4 per cent in Scotland in 2002, according to the Council of Mortgage Lenders - the inference being that homeowners therefore have the scope and resources to absorb further interest rate rises. However, as many as one in ten of UK homeowners - those who have continually used their properties as a kind of "get out of debt free" scheme - face financial meltdown as interest rates rise and the housing market flattens, one leading mortgage provider was honest enough to say this week. Opus Mortgages said it had identified a group of homeowners who it considered were re-mortgaging on a regular basis - in some cases as often as every six months - to consolidate mounting credit card and loan debt. What Opus was most concerned about was that once they had remortgaged and released enough equity in their homes to clear current debt, they continued to build up further debt, resulting in the need for another equity withdrawal at a later date. If Opus?s figures are correct, that means 10 per cent of the UK?s £270 billion annual mortgage market is now taken up with the seriously in debt buying themselves a few extra months? breathing space by tapping into the equity in their home. The Glasgow-based mortgage provider told Smart Money that its evidence suggested that one in five applicants was now what it dubbed a "serial debt consolidator". Lockhart Bruce, director of finance at Opus, said: "People just want to know ?How much can I borrow?? "The number of people who are seemingly trapped into taking out new debt consolidation deals every six months or so and are not addressing their long-term debt problems has to be a cause for concern." Bruce is concerned that thousands of UK consumers face the prospect of a very bleak New Year because they have been eating away at the equity in their homes to reduce their monthly debt repayments. Few people are considering the long-term consequences of replacing short-term unsecured debt with long-term secured debt, or even appreciate that by transferring credit card debt to their mortgage they will in fact end up paying back thousands of pounds more in interest over the lifetime of the loan. These homeowners have been lulled into a false sense of security by years of rising property prices. Many are refusing to modify their spending behaviour, safe in the knowledge that in six months? time they can simply remortgage to buy themselves more breathing space in their monthly outgoing. And then start the cycle all over again. "The fact that as many as two in ten people are not able to sort out their debt problems first time round suggests that they are not getting appropriate advice - or they are not being honest when it comes to addressing the level of their indebtedness," said Bruce. He added that if the serial debt consolidators are to avoid a financial meltdown, they have to be honest with themselves and their advisors about their total debt level. With the overwhelming majority of loans being arranged during the build-up to Christmas and into the New Year as consumers consolidate credit card and unsecured loan debts, Opus warned: "The key to obtaining the best deal is to be honest with an adviser or lender - and to give a sober assessment of your financial circumstances. It is not a good idea to hide debt." Bruce is encouraging those looking to release some of the equity from their property to ask themselves how they would cope if interest rates go up. He is not alone. This week, Mervyn King, governor of the Bank of England, warned that heavily-indebted households were at risk of being badly affected by further rises in interest rates. One in six Scottish homeowners is already so overstretched by their monthly mortgage repayments that they can?t afford the insurance cover they need to keep the roof over their heads. Thousands of Scottish homeowners declined to take out life or critical illness insurance when they bought their home according to the Bank, instead opting to use the cash saved on the insurance premium to allow them to stretch to afford a larger mortgage. Clydesdale Bank is particularly concerned the failure to insure against lost income could have on Scotland?s growing number of single person households. The Bridget Jones generation would find itself especially exposed if their current income level could not be maintained. business.scotsman.com