(Image courtesy of bloomberg.com
According to the Council of Mortgage Lenders (CML) there has been a 48% rise in the number of property repossessions within the last year. The actual number was cited at 18,900 in the six months up to June this year and the comparison comes from the 12,800 in the same period of last year. The CML had previously predicted a pessimistic year total of 45,000. This news is not entirely unexpected given the recent slowdown in the economic markets but the magnitude of the rise is more distressing.
Repossessions have actually been rising since the second half of 2004 but the rate has now begun to accelerate. The number of people falling behind on their mortgage payments has also risen sharply – up by 29% from 120,800 in the first half of 2007 compared with 155,600 in the corresponding period of this year. Once again the CML has made a pessimistic estimate of 170,000 mortgages being in arrears by of more than three months by the end of the year. As a reaction to these figures, the Financial Services Authority (FSA) has asked lenders to treat their customers “fairly” if they are running into financial difficulty, leaving repossession for the last resort.
So who has been most affected by the rise in repossessions? Well, according to the CML, it is mainly the sub-prime borrowers – those with poor, or non-existent credit histories. With the tightening in lenders terms and conditions, home-owners in this section of the market coming off fixed-rate deals are finding it very difficult to find anther competitive rate, often ending up on the current lender’s standard variable rate (SVR), which is often very uncompetitive.
According to the charity Citizens Advice, lenders are not doing enough to help borrowers in trouble. They say that lenders are piling on extra charges and using court action as a first resort instead of trying to negotiate a workable solution with the customer. Rather ironically, the now state owned Northern Rock is one of the most vigorous repossessors. Its repossessions have risen 65% in the last year from 2,215 to 3,710.
So how do these current figures compare with the last housing crash of the early 1990s? Quite favourably with the percentage of total mortgages taken back by lenders in the first half of this year being 0.16%, which is less than half the rate seen in the early 1990s. The housing minister, Caroline Flint has also moved to distance the current state of events from being compared to the last housing crash by arguing that people’s financial woes are nowhere near as bad as they were in the last recession. However, shadow chief secretary to the treasury, Philip Hammond says that the slump in the market is the result of the government’s “economic incompetence”.
Even if the CML’s predicted 45,000 repossessions total is reached by the end of the year, it is worth remembering that this is a tiny fragment of the 11.74 million mortgages in the UK and it is mainly the sub-prime borrowers that are affected with the mainstream market still performing well.