Damage limitation

Can you hear it? A faint scratching, a gentle clucking, a few ruffled feathers? Yes. The chickens are coming home to roost. For six years interest rates have been low and house prices rising strongly.

So, the kindly old banks have been lending us more and more so we can just about manage to meet the payments on that “affordable” home.

They’ve boosted the amount they’ll lend us from three times our earnings to five. More, if we exaggerate our salary, they’ll wink, smile, and turn a blind eye. And if we still can’t afford a home, they’ll let us pay just the interest so that, in 25 years, we will still owe them as much as we did at the start.

Through their kindnesses, many of us have taken on debts we didn’t think we could afford. Now we can’t. Five interest rates rises in less than a year have pushed up our mortgage repayments on average by about £100 a month. And, over the next two years, about two million people will find their fixed rate mortgage coming to an end and face five interest rate rises at once. Bang.

But, when they come to look for the best replacement mortgage, they will find a new trick. Low interest rates but humungous “arrangement fees”. Upfront charges just to be allowed to be a cust womer – £1000 is not uncommon, £4000 is not unknown. It’s as if Sainsbury’s kept down the price of beans by charging you a tenner to walk into the shop. And, because most people cannot write a cheque for £1000, the kindly old banks just add it to the loan and earn more interest.

There is a way out. Some of the web comparison sites now let you work out the total cost of the mortgage over five years or over the whole term of the loan. This is a better guide to the best deal than the headline interest rate. Look at www.moneyfacts.co.uk website. That will help you find the best deal.

Last year, the kindly old banks repossessed the homes of 17,000 people they had lent too much money to – nearly three times as many as in 2004.

Yes, they sure are roosting nicely.

Paul Lewis is a freelance writer who presents Money Box on Radio Four