UK Housing Market Worries

More than a quarter (26%) of UK mortgage holders - some 4.3 million adults - would struggle to cope with a further 2% increase in interest rates, according to a report from MINTEL. Around 4% say that a rise of these proportions could prove 'catastrophic' to their financial situation.

The latter is equivalent to around 640,000 mortgage holders who have already stretched themselves to the limit. Recent signs of a slowdown in the housing market mean that a housing crash remains 'a definite possibility' according to MINTEL, which points out however that a 'soft landing' may currently be the most likely outcome.

'With five interest rate rises since November 2003 and at least one more anticipated by the end of the year, it is not surprising that certain borrowers will struggle with their repayments given further rises in interest rates', says Paul Davies, Senior Finance Analyst at MINTEL. 'This could lead to a rise in mortgage arrears and possessions, both of which would clearly have a detrimental effect upon the state of confidence within the housing market as well as lenders' overall profitability levels',

A high proportion of respondents were uncertain about the bottom line implications of rate rises, in absolute pounds-per-month terms or even the general impact on their finances, implying 'a certain level of naivety or ignorance among mortgage holders' according to Davies. 25 - 34 year olds are particularly susceptible to rises: 'Adults of this age are likely to have only just taken out a mortgage and many will have already stretched themselves due to the increase in property prices. They are also likely to have the largest amount remaining on their mortgage and so it will be a worrying time for them right now', comments Davies.

Despite the danger signs, MINTEL's consumer research suggest that one in five (20%) adults plan to buy a property in the next 2 years, a third of them buying for the first time. However, the 4% of British people who say they are planning to move out of their parent's home is exactly half the level that was recorded six years ago, indicating that 'many young adults have simply been priced out of the property market' according to Davies. 'What is more, the advent of student debt is likely to have resulted in a greater proportion of today's younger generation being forced to live with their parents for a longer period of time because they simply cannot afford to live independently'.

MINTEL's 'Homes, Housing and Property Special' is based on research among 1889 British adults in June 2004. The company's web site is at www.mintel.com

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas, 2024- by Nick Thomas, unless otherwise stated.

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