Early signs of “distress” in housing market?

Early signs of "distress" in housing market?

Moore Stephens has released a statement looking into the value of mortgages in the UK

Early signs of “distress” in housing market?

According to a recent report released by Moore Stephens, there has been a 58% jump in the value of mortgages written off by UK banks in the last year. This rapid rise could be an early sign of distress in the housing market, the firm has stated.

This jump in the value of residential mortgages written off by UK banks and building societies from £77m to £122m in the year ending 30 June 2018 marks the first increase in the value of write-offs since 2013-14.

In recent months, house price growth has stalled across the UK; Moore Stephens has also warned that “further interest rate rises could increase write-offs even more.” For example, house prices have fallen across two-thirds of London.

Jeremy Willmont, head of restructuring and insolvency at Moore Stephens, said: “The interest rate cycle has turned. The unfortunate collateral damage of interest rate rises is more financial pain amongst mortgage holders and more personal insolvency.”

“This year’s increase in mortgage write-offs comes after a steady downward trend in the value of mortgage write-offs over the last decade,” Moore Stephens has stated.

Shortly after the financial crisis, in 2009 UK banks were forced to write-off £984m against residential mortgages – there is of the course the concern that this could happen again.

It has been over a year since the Bank of England started to hike interest rates from its historic low of 0.25%. Now, interest rates sit at 0.75%; this rate rise has already impacted the floating-rate and tracker mortgages. They are increasing from a very low base, but they will be catching out homeowners who are already struggling with their finances, the firm has warned.

Furthermore, according to Insolvency Service data, there has been a 10% rise in the number of individuals going bankrupt in the last year. In 2017, the number totaled 96,940, but, in the year ending 30 September 2018, this had risen to 106,570.

Willmont concluded: “Increasing mortgage write-offs could suggest the economy is beginning to display signs of slowing down.

“The run of good luck that the economy has had since the Brexit vote looks like it could be coming to an end. We may see the number of write-offs rise in the coming months as a result.

“Whatever type of Brexit we end up with, concerns have been raised about the potential impact on the economy. We could see more unemployment and more security for these mortgages has held up.”

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