UK homeowners pay off £8bn of mortgage debt

British homeowners are benefiting from the cuts in interest rates by paying off their mortgages in record amounts, figures showed today.

A huge £8bn of mortgage debt was repaid in the fourth quarter of last year, according to Bank of England figures, as Britons with tracker mortgages responded to the sharp fall in interest repayments by pumping the spare cash into paying off their capital.

It follows figures earlier this week showing record inflows of savings into building societies and data last week showing a rebound in the proportion of income people are saving, as those in employment take the opportunity to pay off debt and prepare for leaner times as the country sinks into recession.

Read more: UK homeowners pay off £8bn of mortgage debt

Debt management - helping avoid mortgage repossession

Figures from the Council of Mortgage Lenders (CML) suggest that mortgagors around the UK are finding it harder to manage their debts. At the end of June 2008, 1.33% of mortgages were at least three months in arrears. Three months later, this figure had risen to 1.44% - and by the end of 2008, 1.57% (182,600 mortgages) were in this group.

The basic fact is simple: people miss payments when they don’t have enough money to pay all their bills. However, the ones they’re missing aren’t necessarily the ones that are causing trouble. Many people find they can’t make their mortgage payments because payments to their unsecured debts are taking up too much of their income. This is something debt management can help with.

Debt management - making money available for secured debts

When someone enters a Gregory Pennington debt management plan, we talk to their unsecured lenders, asking them to accept lower monthly payments and, where possible, to freeze interest and / or waive charges.

Basically, we tell them how much our client can afford to pay them per month once they’ve taken into account what they need for their unavoidable expenses, from mortgage payments to food and utility bills. Lenders will normally understand that mortgage payments must take priority over (for example) credit card payments: most would rather accept lower payments for a while than see the borrower lose their home.

Of course, making reduced payments will mean it’ll take longer to pay off those debts - and making smaller monthly payments than originally agreed will have an impact on a borrower’s credit rating, which can make credit more expensive and / or difficult to obtain for a while. Even so, the consequences of making lower payments to unsecured debts are less serious than the consequences of missing payments to a mortgage / secured loan.

Debt management - negotiating with secured lenders

When the situation calls for it, our debt management experts will also talk to secured lenders. If one of our debt management clients is facing mortgage arrears, for example, we can talk to their mortgage provider and try to find a solution that suits both sides - a repayment plan that’ll help the borrower pay off the arrears at a realistic, affordable rate.

Are you struggling to pay your mortgage because of your debts? Click here for debt help from Gregory Pennington.

Debt

What should you do if you fall into arrears with your mortgage, or generally need help with your debts?

The below list features some of the people you can call to get help with debt.

• Citizens Advice Bureau - The CAB are a first port of call for many people. They may be able to give you advice on your options.
• Think Money - Think Money can provide you with help on mortgages, remortgages and debt.
• Gregory Pennington - Reputable debt management company who provide various debt solutions.
• Debt Advisers Direct - Debt Advisers Direct specialise in debt consolidation and debt management.
• Shelter - Shelter are a housing and homelessness charity.
• Your local council - Your local council may be able to help with housing and debt related problems.

BoE failed to spot debt danger

Bank of England deputy governor Sir John Gieve has admitted that the Bank did not understand the severity of the problems leading to the economic crisis.

Speaking to the BBC, Gieve said that the Bank of England was aware that “crazy borrowing” was taking place, and that the rise in house prices was unsustainable.

But he added that the Bank did not think the problem was as serious as it has turned out to be.

The financial crisis was largely caused by relaxed lending criteria from banks and other financial institutions, and many borrowers eventually found they were unable to repay their debts.

A spokesperson for debt management company Gregory Pennington said: “The numbers of people falling into debt have risen noticeably over the past few years, and since debt problems tend to filter through over a long period of time, it’s possible that the numbers will continue to increase throughout 2009.

“We advise anyone who finds themselves struggling with debt to speak to an expert debt adviser before the problem grows out of control.”

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