Fears mount as debt crisis looms

A combination of soaring house prices, buoyant consumer confidence and cheap money means we are borrowing like billy-o. A record number of mortgages were agreed by Britain's leading banks in April, and credit card spending has also shot through the roof.

But a warning was sounded this week that some people may be letting the feelgood factor go to their heads by borrowing more than they can afford.

A new survey suggests that some people are over-committing themselves in order to afford "inflated" house prices and could end up struggling to meet their mortgage payments if interest rates rise. The research coincided with a report from housing charity Shelter which claims that around 7m people have no savings to fall back on to cover their housing costs.

Only this week new figures were issued revealing that a whopping 232,000 mortgages worth a total of £14.8bn were agreed by Britain's major banks in April - the largest ever number for a single month, and more than 30% up on April 2001. That figure includes both loans for house purchase and remortgages.

It's a little worrying, but probably not surprising, to see that the average amount being borrowed by those buying a house is 14% higher than a year ago. That obviously reflects higher house prices but also the perception that credit is currently very cheap.

That could all start to change as early as this month, however. Strong borrowing and retail sales figures have increased the risk of an interest rate rise - perhaps as soon as this coming Thursday, when the Bank of England monetary policy committee will announce its rate decision for June.

That wouldn't be great news for anyone who has just taken out a discounted rate mortgage or is on their lender's standard variable rate. For someone who has recently taken out a £135,000 loan - roughly the average for London - a 0.25% mortgage rate increase would add £28 to their monthly bill in the case of an interest-only borrower, or around £20 for a typical repayment borrower, says mortgage broker Charcol. So three or four rate rises could easily add up to £60-£110 a month extra. Those people with fixed rate mortgages are of course cushioned from any increases.

Bearing all that in mind, it's no wonder that one in four people aged between 25 and 44 fear they may not be able to meet their mortgage repayments in the coming months. That is one of the findings in a survey from debt management specialist the CPP Group.

All in all, 49% of the population have debts they fear they will struggle to repay in the next few months - up from 40% at the beginning of this year, it says.

"The latest findings are the first clear indication that people are taking on more than they can afford," says a spokesman for the company. "Our figures clearly show that a significant proportion of the UK population already fears not being able to meet their mortgage premiums should interest rates start to rise. It is imperative that people take a good look at their monthly expenditure and allow for the unexpected."

On the same theme, Shelter published research which revealed that more than two in five people who pay for their housing have worried about or been unable to pay their rent or mortgage. It says there is a sizeable core group of people who are particularly vulnerable: the 28% who have no savings to fall back on to cover their housing costs.

Shelter has compiled a "cash crisis list" of regions with people facing money problems affecting their housing who have sought help from the charity's free 24-hour housing advice line Shelterline (0808 800 4444). Top of the list is London followed by, in order, the West Midlands, Greater Manchester, Kent, Essex, South Yorkshire, Lancashire, Nottinghamshire, West Yorkshire and West Sussex. Topping the list of London boroughs is Lambeth, followed by Westminster, Southwark and Hackney.