A recent report has shown that the number of people in the UK who are at risk of losing their homes through repossession has rocketed by nearly 20% in the past year. Homeowners have been hit with a variety of rising costs over recent months, which have seriously affected the ability of many homeowners to keep up with their mortgage repayments. Many homeowners began struggling nearly two years ago, when interest rates started to rise thick and fast, taking the base rate from 4.5% to 5.75% in under one year.

However, after a number of months stuck at 5.75% the base rate eventually began to come back down again, with the Bank of England cutting the rate three times by 0.25% each time between December of last year and April of this year. However, whilst this brings the base rate back down to 5% a lot has changed since the interest rate started to go up nearly two years ago, and this means that many homeowners have not felt the benefits of the rate cuts.

The global credit crunch, which swept across the nation last summer, has had a lot to do with the difficulties faced by many homeowners. This is because one of the many adverse effects of the credit squeeze is that affordable mortgage have become very difficult to come by, and this means that those looking to remortgage to a more affordable deal face severe problems, particularly if they have less than perfect credit. This is a problem that will particularly affect those coming off cheap fixed rate deals taken out a couple of years ago, as they will see the cost of their mortgage repayments rocket.

Another problem is that the cost of borrowing has continued to rise even though the base rate has fallen. In fact, some officials have stated that there no longer seems to be any link between the base rate movement and interest rate movement from individual lenders, stating that the Bank of England has effectively lost control of retail interest rates. So, whilst the base rate may have come down the cost of mortgage repayments has remained high for many homeowners, reducing their ability to keep on top of repayments.

On top of all this there have been a number of significant rises in living costs and bills over recent months, which have further impacted upon household finances. The cost of energy usage soared in the first few weeks of the year, and energy bills are set to rise further over the coming months. In addition, the cost of petrol has rocketed and food prices have been rising fast. All of this, coupled with increases in other bills such as council tax and water, have made a big difference to homeowners’ affordability levels.

One economist recently stated: ‘The financial pressure on many homeowners is increasing and it seems certain that repossessions will trend up appreciably over the coming months, particularly if the economy suffers an extended marked slowdown and unemployment starts rising, which seems likely.’ He added: ‘A significant number of people have had to stretch themselves to the absolute limit to get into the housing market in recent times as prices soared. This means that they are particularly vulnerable to any adverse shock to their finances.’

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