Homeowners were today warned that the era of cheap mortgages is officially over and that the credit crunch will last for at least another year.
The Treasury's top officials, appearing before Parliament, said that the premium over the Bank of England base rate charged by lenders was not expected to drop to the level enjoyed by consumers last year.
The warning follows a spate of mortgage lenders withdrawing deals and increasing the cost despite falls in the base rate.
Halifax, the country's biggest mortgage lender, yesterday increased its tracker-rate deals by up to 0.3 percentage points and also hiked the cost of fixed-rate loans.
In evidence to the Treasury Select Committee, David Ramsden, the Treasury's top macro-economic expert, said that the Government now expected the credit crunch to last until at least mid-2009. He warned consumers seeking credit that conditions on the high street were unlikely to improve this year.
Millions of people face sharp increases in their mortgage costs when cheap deals expire this year. A growing number of people are also reporting difficulties re-mortgaging as banks and building societies tighten the criteria for offering loans.
Fears are growing that hundreds of thousands of people will be stuck in a debt trap – unable to switch to other deals and unable to afford to repay their loans.
This morning, the Citizens Advice Bureau reported a sharp rise in the number of people seeking help with mortgage arrears since last year.
The debt charity said staff at its bureau in England and Wales had seen a 35% increase in people contacting them for help with the issue in January and February compared with the same months of 2007.
They are also seeing a continuing rise in the number of people facing problems paying for basic essentials such as gas, electricity, water and telephone bills and council tax.
A survey of nearly three-quarters of Citizens Advice Bureau in England and Wales showed they had dealt with 215,000 new debt problems during the first two months of 2008 alone.
Treasury officials said today that they did not expect house prices to fall this year although they would rise in value by far less than in recent times.
They also insisted that unemployment was not forecast to increase despite the economic turmoil. Many independent experts believe the official predictions are overly optimistic.
There was some relief on the financial markets today with the FTSE-100 index of the country's leading stocks trading up by more than 100 points amid an expected cut in American interest rates.
Source:
http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS
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