British homeowners now have the greatest level of mortgage debt per household on record, due to continued house price growth and longer mortgage terms.
The average outstanding mortgage stood at an eye-watering £121,678 in August, according to the October Money Statistics, produced by The Money Charity.
This is the first time the average balance has pushed above £120,000, and is a 10.5 per cent rise from £109,487 in August 2013.
Why has the average outstanding mortgage debt risen?
Longer mortgage terms are partly responsible. The number of 35-year mortgages has jumped from 2.7 per cent in 2005 to 15 per cent in 2017. While a longer term results in lower monthly repayments, borrowers pay many thousands of pounds more over the life of the loan.
But it is continued house price growth that has contributed most to this rise in debt. The UK House Price Index shows prices increased 5 per cent in August to £225,956, up from £215,143 a year before.
In some areas of the UK including the East Midlands, North West and South West, the increase was well in excess of 6 per cent.
This means buyers have to borrow more to get on to the housing ladder. As wages continue to stagnate in real terms, the average first-time buyer is now borrowing 3.63 times their annual salary.
As mortgage debt increases, interest rate rises could make it difficult for families to keep up with their repayments, particularly if they are nearing the end of a fixed rate deal or have a variable rate mortgage.
Steph Hayter, Acting Chief Executive of The Money Charity, says:
“The rising amount we owe on mortgages should be a concern to all of us. As interest rates seem likely to rise, people may soon begin to feel the effects on their wallets.”
Don’t get caught out – if your mortgage payments will be affected by the recent interest rate rise, or you haven’t reviewed your loan in a while, speak to one of our friendly advisers today about getting a better deal.