Debt fears as figures show many borrowers on variable mortgages

The potential impact of rising interest rates was highlighted this week after figures showed more than two-thirds of mortgages on variable rates.

In its quarterly analysis of mortgage lending data, the Financial Services Authority said 69.2 per cent of current mortgage balances were on variable rates in the first three months of 2011, the highest level since 2008.

Interest rates have been at a record low of 0.5 per cent for more than two years but policymakers are expected to lift borrowing costs in early 2012.

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Commentators at Capital Economics warned that the figures left borrowers looking particularly vulnerable to interest rate rises in the medium term.

Property economist Paul Diggle said: “Given the high level of mortgage debt outstanding in relation to incomes, that could have serious ramifications for payment problems when interest rates do eventually rise.”

The strain on some households has been shown in the first rise in home possessions in a year. In line with recently published data from the Council of Mortgage Lenders, the FSA said new possessions rose 17 per cent to 9,613 in the quarter, although this was countered by a drop in arrears trends.

The total number of new arrears cases in the first quarter was 35,600, 8 per cent lower than the previous quarter.

Consequently the proportion of the residential loan book that is in arrears, and hence not fully performing, also fell, to 2.88 per cent.

The total value of outstanding loans fell slightly from the previous quarter to £1.2 trillion, while the number of new advances totalled £33bn, 10 per cent lower than the previous three months but 3 per cent up on the start of 2010.