Although overall mortgage stress has significantly dropped in March, the latest Fujitsu Consulting Mortgage Stress-O-Meter cautioned first time buyers to exercise caution when entering the market.
Overall, the number of households experiencing mortgage stress fell 5.5% compared with February, with 587,000 households in some degree of pain, compared with a peak of 900,000 in August 2008.
Severe stressed households (those facing a potential sale or foreclosure) fell by 36%, thanks to lower interest rates and government payments, while mild stress rose by 6.2% due to a rotation from severe to mild and driven by lower income as overtime hours are reduced, and investment incomes fall.
However Fujitsu Consulting's managing director, Martin North cautioned the industry against taking a short-sighted view.
"Falling interest rates and government intervention have made a significant positive impact on mortgage stress. This is good news in the short term, and the additional government payments will reinforce this trend over the next couple of months," he said.
However, he added, a significant rise in mortgage stress later in the year was likely, as unemployment continued to bite.
"Recent interventions have definitely postponed the inevitable but, for example, if unemployment reached 7.5% by December 2009, this would translate into over 1.2 million households experiencing some degree of stress, of which over 460,000 would be close to the edge," North said.
First homebuyers were of particular concern, with a rise in unemployment potentially landing up to one third of the first time buyers who entered the market over the past 12 months, in mortgage stress.
North said young growing families would be particularly hard hit, and all prospective purchasers should be prudent and have at least a 15% deposit.
"Today many first time buyers are still entering the market with small deposits, and are buying at inflated prices. This is of significant concern because they have very little protection against falling house prices and potential unemployment," he said.
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