Housing wealth leaves most mortgage customers in a strong position

Data newly published by the Council of Mortgage Lenders (CML) shows that mortgage balances outstanding are dwarfed by unmortgaged housing wealth held by home-owners.

Although the position of individual households may vary substantially, the amount of unmortgaged housing equity leaves the vast majority in a strong position to cope with a change in their circumstances.

The main article in today's relaunched CML News & Views shows that unmortgaged housing wealth has more than trebled in the last 10 years. It totals almost £2,500 billion (£2.5 trillion), more than twice the value of mortgage balances outstanding (£1.1 trillion).

If our current housing market forecast is correct and house prices are broadly flat this year, free equity held by home-owners would account for 68% of total housing wealth at the end of 2008, and 45% for mortgage customers. Some commentators have been more bearish in their forecasts for house prices. But even if house prices fall by 5% this year, there will be only a modest impact on overall levels of housing wealth. That will help ensure that most borrowers are therefore able to cope, no matter how the market develops in the short term.

The article in CML News & Views concludes: "Data on the aggregate balance sheet position of households shows that the finances of home-owners are strong and healthy, even among those borrowing with a mortgage. We recognise that the financial position for individual households may vary. Overall, however, the strong reserves of wealth built up by home-owning households will underpin the finances of the vast majority in a variety of different circumstances."