Mortgage debt hits £1 trillion

Outstanding mortgage debt is set to break through the £1 trillion barrier for the first time in early May, the Council of Mortgage Lenders (CML) said today.

But despite the amount consumers owe on their home loans breaching the 13-figure mark, the group said the debt was dwarfed by the equity contained in property.

The council said borrowers' homes were collectively worth £3.6 trillion more than the mortgages they had taken out to buy them, with housing equity the largest component of wealth for people in the UK.

Despite the recent expansion in lending, it said there were few signs that borrowing had reached its limit, with continuing growth expected for the foreseeable future.

According to the council, home ownership had expanded from 60% of the population to 70% over the past 20 years, with more still wanting to own their own property.

Michael Coogan, CML director general, said: "The £1 trillion threshold is clearly a landmark, but it does not have any particular significance for policy-makers or others.

"Although it is a milestone, it will perhaps soon be forgotten as home ownership and mortgage lending continues to grow further.

"Over time, owner-occupation has the potential to create wealth and independence for people, and we will continue to work for the expansion of sustainable home-ownership."

Meanwhile, people unlocking equity from their homes will be offered more protection after a Financial Services Authority decision to cover home reversion plans for the first time.

They are an equity release product under which people sell a proportion of their property, but retain the right to continue living in their house until they die or sell it.

But unlike lifetime mortgages, under which retired people borrow a proportion of their property's value which they do not repay until the home is sold, home reversion plans are not regulated by the FSA.

The authority today set out plans to regulate both products to create a level playing field. The new regime is expected to come into force in the spring of next year.

The proposals will also regulate so-called home purchase plans or Islamic mortgages, which enable Muslims to buy their own home without paying interest, which is forbidden under Islamic law.

A second scheme to help Muslims buy property, known as Murabaha, is already regulated by the FSA.

Under the move, firms offering the products must be deemed to be fit and proper and have appropriate resources.

Consumers must also be given clear information about the products and services a firm is offering, and they must be sold products that are suitable for their circumstance.

The move also means people can obtain redress through the financial services compensation scheme if they lose money as a result of their provider going bankrupt, and they can take any complaints to the Financial Ombudsman Service.

Dan Waters, FSA director of retail policy, said: "Regulation of these sale and lease arrangements represents an important new development for the FSA and for consumers in the UK.

"It allows us to deliver a level consumer-protection playing field with products designed for similar purposes. It also builds on the work that we have already done in the field of Islamic financial services, to improve consumer access to these products."