Homeowners 'on the rack' due to record mortgages

Research shows that the rising cost of their mortgage means they are effectively paying double the official rate of inflation in their annual expenditure.

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A typical home loan taken out to buy a home is nearly £150,000, which has jumped about 50 per cent in just three years.

The warning from the Consumer Credit Counselling Service follows the Bank of England's decision to raise interest rates three times since last August.

Yesterday it left interest rates unchanged at 5.25 per cent but experts sounded the red alert that this is only a "temporary respite".

They warned that rates will rise again, possibly twice, with the first rise coming as soon as April.

More rate rises would add to the problems facing homeowners who are struggling to pay their home loan each month and all the other household bills.

The CCCS, which receives more than 820 calls every day, said homeowners face a double whammy of higher inflation and more debts.

It found that their "personal" inflation rate is nine per cent, which is more than double the country's standard rate of inflation of 4.2 per cent.

Their inflation rate is higher because of their rising mortgage payments - but also big rises in energy bills, council tax and other "essentials".

They are not spending any money on "luxuries", such as foreign holidays and electronic goods, where the price is often falling. The figures were calculated using the Office for National Statistics's recently launched personal inflation calculator.

The CCCS also found that a typical homeowner who contacts the charity has unsecured debts of £36,192, which is about £14,200 higher than a non-homeowner.

Unsecured debt includes borrowings on credit cards, personal loans and other overdrafts. It excludes their mortgage debt which is 'secured' on their home.

Malcolm Hurlston, the CCCS chairman, said: "Homeowners are being stretched. They are on the rack.

"As the burdens on household finances mount, our research shows that homeowners in particular should take care."

House prices are still rising in Britain, more than a decade after the housing boom began in 1996.

Halifax, the country's biggest mortgage lender, said prices rose 1.8 per cent in February, bringing the average price to a record £192,233.

Prices are still being pushed up because there are so few homes available to buy, particularly in London and the South East.

But it said that the rate of house price inflation has fallen dramatically recently, a signal that the three rate rises are beginning to bite.

Over the last quarter, prices have risen just 2.3 per cent, compared to 4.7 per cent in the previous three months.

Martin Ellis, chief economist, said: "A number of key housing market indicators suggest that the three interest rate rises since last August are contributing to a dampening of housing demand."

But interest rates might rise yet further, despite being kept static yesterday. Graeme Leach, chief economist at the Institute of Directors, said: "This looks more like a temporary respite than a reprieve.

"Recent stock market turbulence has played its part in today's decision but we think a further quarter point interest rate rise is likely next month."

Roger Bootle, economic adviser to the accountants Deloitte, said: "Rates are still likely to rise again, perhaps as soon as next month. "And there remains a chance that they will eventually have to rise above 5.5 per cent."