11th March 2010
The Financial Services Authority (FSA) has warned that millions
of homes in the UK face risk of repossession if the economic
recovery falters.
The city regulator forecast that any shock increase in interest
rates, a rise in unemployment or a further crash in the property
market could have a huge impact on the incomes of many middle-class
families.
Households most at risk, the FSA said, are families that rely on
credit cards and loans to maintain an affluent lifestyle, and young
professional who borrowed heavily to get on the property
ladder.
It fears that without a strong recovery in the economy, these
families could soon struggle to meet their monthly repayments and
eventually lose their homes.
Despite the Bank of England base rate being at a historic low of
0.5% for one year, families are still failing to repay their debts
and 4.7m homes are still paying mortgage rates that are more than
eight times the base rate.
Many economists believe interest rates will begin to creep up at
the end of the year, and the FSA said that the Bank of England will
have to increase the current 0.5% base rate to more "normal" levels
for the economy to fully recover.
The regulator said this would "increase the cost of debt before
households incomes have recovered fully" leaving many households
"vulnerable to property price, income and interest rate
shocks."
FSA chairman Lord Adair Turner said yesterday: "This recession
is really quite different than the early 1990s. We have households
which are more indebted than they were in the past and that creates
vulnerability."
Last year, repossessions soared to their highest levels in 14
years as the recession took its grip on homeowners.
46,000 people lost their homes throughout the year, according to
the Council of Mortgage Lenders.
Speaking to the Daily Mail, Ed Stansfield, an economist with
Capital Economics, said: "I think we could see a very long tail for
arrears and repossessions with high numbers of people losing their
home stretching back for many years to come.
"People will realise that more of their income is being taken up
by higher taxes or greater debt levels.
"Any sudden changes in the economy will seriously widen out the
number of people that are going to be affected."
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