Though Cowards Flinch

I’m surprised more has not been made of the report just out from Legal and General on current mortgage types, which contains some pretty frightening figures.

The headline figure is that 90% of households with a mortgage are on a variable rate, compared with 60% in 2006. 

This is much higher than has previously been assumed because researchers have not looked at the many households changing from fixed rate to variable rate in recent years in order to benefit from low interest rates.  Many people have been on 2% interest rates rather than 4.5% 5 year fixed rates.

The maths from there are reasonably simple, although approximate.  If interests rates now rise, as they are predicted to do, people tied into variable rates will be forced on to 4.5%  rate.  This will cost an extra £200 per month on an average mortgage of £150,000.   If the rate soars to 8%, which is nearer the worst case scenario, we’re talking additional costs of £500 per month or £6,000 per year.

With around 8 million live mortgages in the UK, that’s going to mean an enormous hit on general consumer demand, quite aside from the personal distress caused by the inevitable repossession.  5 million households having to spend £1,000 a year on mortgage payments rather than in the wider economy is going to hit consumer demand by £5bn a year, and that’s a conservative estimate. 

Menawhile, Osborne’s happily slashing demand through massive cuts to the public sector.  I’d ask someone send him the L&G report, but I don’t suppose it’ll make any difference. 

The two Eds, on the other hand, should be carrying a copy for their next ‘squeezed middle’ pitches.