With the UK increasingly faced with a mountain of debt, last month the Bank of England announced that the country’s consumer debt had reached a massive £1trillion many are inclined to blame people not managing their money properly, or being shopaholics.
In addition, some point the finger at householders who have overstretched themselves to get a mortgage the Council of Mortgage Lenders said banks will lend an extraordinary £360billion in mortgages before the end of 2007.
A closer look at the figures suggests that home ownership is not to blame for all this debt. Housing equity still outweighs mortgage debt, the value of housing increased by £410billion last year, while mortgage balances rose by just £100billion. So while the nation may owe more on its mortgages, its assets still outweigh the debts.
However, many homeowners are still in danger of falling behind and risking repossession and bankruptcy. This can be attributed to the rising costs of living.
The average cost of running a home has gone up 12% over the last two years, to £11,035, an increase of more than £1,000. In addition, the average cost of raising a child is up 9%.
For the average family, this could mean an increase in their annual expenses of up to £2,800, to be added to rising mortgage costs following recent interest rate rises, as well increases in interest rates on consumer debt.
This means the average household could find themselves thousands of pounds worse off, despite having been sensible with their household finances, and not taking on massive debts from credit cards.
This explains why some households are struggling to pay their debts, have already petitioned for bankruptcy, or faced court action for repossession.
If your house is worth more than the total amount of debt, this will give you a way to avoid such measures as repossession, pay off what you owe, and still leave enough left over to start again. It may even be possible to sell your home then rent it back.