It’s all going to go Pete Tong again?

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Daily Mail today:

Britons ‘spend 40% of wages on their mortgage’
By BECKY BARROW and SAM FLEMING, Daily Mail 12:30pm 29th June 2006

More than 40 per cent of a homeowner’s take-home pay is now being wiped out by mortgage repayments, Britain’s biggest building society revealed yesterday.

Nationwide warned that this is the highest level since the dark days of the 1991 recession when house prices fell sharply.

It comes as the total amount owed by Britain’s 11.6 million home-owners soared to more than £1 trillion for the first time.

At this level, people’s massive mortgage debts of £1,006,796,000,000 are nearly equal to the country’s entire economic output, or GDP.

The country’s gross domestic product is £1.2 trillion, but yesterday’s Bank of England figures show the total amount of mortgage debt is catching up fast.

Soaring house prices, which have been rising for a decade, have forced anybody wanting to get onto the property ladder to take out a huge home loan.

The average mortgage has jumped to a massive £115,000, with many people forced to borrow much more to buy a decent home in the South.

In 1986, the average mortgage was just £25,000. Ten years later, it was still just £44,000 but it has now more than quadrupled over the last two decades.

Today’s huge mortgages mean that millions of homeowner’s take-home pay is eaten up by their repayments before a single other bill is paid.

The problem has rapidly got worse, the Nationwide said yesterday as it revealed house prices have jumped £8,000 over the last year to an average of £165,730.

In 2003, about a third of the take-home pay of a home-owner on average earnings was spent on mortgage repayments. Today, it is 42 per cent.

The calculation is based on a person on average take-home pay of £20,500 buying a typical home worth £165,000 and borrowing a mortgage of £125,000. The repayment mortgage would have an interest rate of 5.09 per cent.

Fionnuala Earley, Nationwide’s group economist, said: ‘The deterioration in affordability and its likely impact cannot be ignored.’

She warned that people’s ability to pay their mortgages will ‘continue to bite’ unless the situation changes.

The worry is that if mortgage repayments eat up more of people’s take-home pay, they will have less and less money to cope with the rest of their financial commitments.

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