Mortgage misery

THE sub-prime mortgage market in the United States is in meltdown. Sub-prime is the name given to poor people with bad credit records who have to pay over the odds for their mortgages. The UK sub-prime crisis may be a lot nastier than the US one. Here s w

THE sub-prime mortgage market in the United States is in meltdown. Sub-prime is the name given to poor people with bad credit records who have to pay over the odds for their mortgages.

The UK sub-prime crisis may be a lot nastier than the US one. Here's why.

Firstly, despite the mounting evidence that people can't afford them, house prices continue to soar. The average British home already costs 11 times the average local salary, and that figure continues to increase.

The net result is that even as payment problems mount, people will carry on taking out bigger mortgages. What choice do they have?


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Secondly, US interest rates may have reached their peak and could soon fall. In the UK that isn't the case.

The Bank of England is likely to raise borrowing costs at least once more to six per cent.

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If the housing market and general inflation don't show any sign of responding to that treatment, interest rates could go higher still. The result is that thousands of families are left in a vulnerable position, and so are the banks that have lent them money.

While the property market rises, everyone will be safe. If your house is worth more than your mortgage, you will be desperate to hold on to it.

If you get into trouble, you can always sell it, repay the loan, and move somewhere cheaper.

However, as homeowners in the United States have discovered, if house prices start to fall, the arithmetic changes completely.

If you are in trouble with your mortgage, you can't pay it off by selling. There is little incentive to keep up the payments.

Why not just walk away, and hand the keys and the problems over to the mortgage company?

Britain hasn't reached that point yet. But if it does, the mess could be even worse than in the USA.

JOHN SMITHEE, Kingsley Avenue, Wisbech

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