Nineteen Years Of Rising Mortgages

Over the past two decades, our mortgage debt has increased sixfold. Should we worry about this debt mountain?

This morning, I've been studying some statistics taken from the Bank of England's website -- what an exciting life I lead! To be precise, I've been examining the data for mortgage borrowing since 1987, when the previous housing boom was in full swing. As you can see from the following table, our total mortgage debt has increased from £165 billion in 1987 to a record £1,078 billion (more than a trillion pounds) at the end of last year:

*Year*	*Mortgage* *debt* *(£bn)*	*Yearly* *increase* *(£bn)*	*Yearly* *increase* *(%)*
1987	165	-	-
1988	207	42	25
1989	257	49	24
1990	294	37	14
1991	320	26	9
1992	340	20	6
1993	357	18	5
1994	376	18	5
1995	390	15	4
1996	409	19	5
1997	431	22	5
1998	456	25	6
1999	494	38	8
2000	536	42	8
2001	591	55	10
2002	674	84	14
2003	773	99	15
2004	876	103	13
2005	966	90	10
2006	1,078	112	12

Thus, over the past twenty years, our mortgage burden has increased almost sixfold (553%), which amounts to a compound annual growth rate of 10.4%. What's more, you can see the effect of the latest housing boom: in each of the past six years, our mortgage mountain has grown by 10% or more each year.

Of course, wages have also increased markedly since the years when Mrs Thatcher ran the country, but at nothing like the rate of mortgage growth. According to National Statistics Online, our after-tax disposable income has risen from £263 billion in 1987 to an estimated £837 billion in 2006. In other words, it has increased by 219%, which equates to a compound annual growth rate of 6.3%.

So, our mortgage burden has risen massively faster than our wages, so we're all in trouble, right? Not exactly, because two other trends have helped homeowners. First, house prices have risen even more sharply than mortgage debt, with the value of private-sector housing reaching £3.8 trillion at the end of 2006.

Second, mortgage interest rates are far lower these days than they were in the Eighties and Nineties. For example, at the end of 1991, the standard variable rate (SVR) charged by the UK's biggest mortgage lender (Halifax Building Society; now part of HBOS group) was 11.5% a year. Today, Halifax's SVR is 7.25% a year, which is more than a third (37%) lower.

In summary, although our mortgage debt has rocketed over the past two decades, so has our housing equity, which leaves longstanding homeowners sitting pretty on a hefty nest egg. However, interest rates won't remain low forever, which puts today's homebuyers at the greatest risk.

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