Figures recently released by the Council of Mortgage Lenders (CML) show that the number of homes repossessed in the UK last year fell by 24%, to 36,300. The number of homeowners in arrears by 2.5% or more of their outstanding loans also fell by 13%, to 169,000 - proving that the continued level of interest rates has been beneficial to many people.
However, on the flip side, the CML stated that it expected arrears and repossessions to rise this year. In the words of CML director general, Michael Coogan: “As we go through 2011, the number of people facing payment pressures may increase if interest rates rise, and as a result of the spending cuts that have resulted in reductions in the level of public support available.”
Forecasts of 40,000 repossessions and 180,000 arrears cases have been predicted by the CML for 2011 and, despite the recent fall in these figures last year, it is confident that these predictions will be in line with the actual numbers at year end. This pessimism doesn’t only come from expected interest rate rises, pay freezes and rising unemployment, but also from changes in schemes such as the Government Support for Mortgage Interest scheme. This scheme is aimed at subsidising the interest payments for mortgage holders who become unemployed.
Payments are now made assuming that the interest rate is 3.63%, rather than the previous 6.08%.
Repossession numbers have actually been falling for more than a year; the 7,900 drop in the last quarter of 2010 was the fifth consecutive quarterly fall. But despite the encouraging numbers, the CML’s data showed that those people in the biggest arrears (10% and above) actually grew in number in quarter four 2010, by 7,000 to 27,400. This was the fourth successive quarterly increase.
Further data from the Ministry of Justice (MoJ) suggested that lenders were going easier on borrowers by pursuing fewer of them through the courts for mortgage arrears. In the last three months of 2010, 17,847 county court actions were started for repossession, 12% fewer than the previous quarter. The number of successful court actions for repossession were also down; 9% fewer at 13,937. Of those, nearly half were suspended to allow the borrower time to make the repayments.
The biggest driver in bringing repossessions is undoubtedly the historically low base rate of interest. The Bank of England is coming under increasing pressure to raise it due to inflation rising quickly. Just a few modest raises could be enough to tip some lenders over the edge and this could see the level of repossessions ‘spike’ sharply.