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The number of homes being repossessed fell by 1% in the second quarter of the year to 9,000, compared with 9,100 in the first three months of 2011, according to the Council of Mortgage Lenders (CML). But some housing insiders claim the UK is set to experience an “arrears timebomb”, which will go off as soon as rates rise next year.
The three-month figure represents a 7% fall on the number of home repossessions recorded in the second quarter of 2010 and takes the total number in the first half of 2011 to 18,100 compared with 19,500 in 2010.
But the number of mortgages in arrears of between 1.5% and 2.5% of the outstanding balance edged up from 77,800 to 78,500 in the second quarter of the year, and the CML did not revise its total repossession forecasts for 2011 and 2012, which stand at a respective 40,000 and 45,000.
CML director general Paul Smee said: “Mortgage repayment problems have stabilised against a backdrop of stable employment and low interest rates. Despite current uncertainty in financial markets, we see no need to revise our forecasts. Anyone with debt worries should take advice and speak to their lender at the earliest opportunity, as most temporary financial problems can be resolved.
“It is clear from the low rate of repossession that lenders want to keep people in their homes, and are successfully doing so in the vast majority of arrears cases. Repossession really is seen as a last resort.”
Chris Gardner, director of mortgage broker Obligo, warned: “This year’s apparently modest figures could be the tip of the iceberg. They’re being kept artificially low by two important factors: the interest rate is at a historic low, and lenders have shown remarkable forbearance. Together they have created a fool’s paradise, where people’s mortgage payments are comparatively low and lenders are being especially tolerant of late payers.
“But lenders’ forbearance cannot last forever and if they change their approach the rug will quickly be pulled from under many late payers, leading to thousands more repossessions.
“While this week’s low growth forecast from the Bank of England is likely to mean an interest rate rise is still some time off, when – not if – the rate goes up there will be a big spike in arrears.
“The current low rate means that many who are just able to meet their repayments now will soon be swamped by even a small rate rise. Together they form an arrears timebomb, which will go off as soon as rates rise next year.”
The CML has also announced that the value of new buy-to-let loans increased by 21% in the second quarter of 2011, driven mainly by remortgaging. It said there were 32,000 buy-to-let loans worth £3.5bn taken out from April to June, the highest number and value since the last quarter of 2008.
David Whittaker, managing director of Mortgages for Business, said: “Landlords are basking in the glow of the BTL [buy to let] sector at the moment. Product numbers are up, yields are healthy and rents are in no danger of falling. Amid a backdrop of uncertain markets and social unrest, the BTL market is one of the few beacons of light in an otherwise depressing picture. Landlords and professional property investors are voting with their feet that now is a good time to be in the market and we expect this to continue throughout the rest of the year.”
However, the CML added that the BTL market is running at around one third of the levels seen at the peak of lending in 2007.
Citizens Advice has tips for homeowners struggling to keep up with mortgage payments, claiming it has dealt with more than 100,000 mortgage and secured loan arrears and stopped 5,000 people becoming homeless over the past 12 months.
Chief executive Gillian Guy said: “With the cost of living going up daily and incomes lagging badly behind, mortgage lenders and the government must focus on helping people stay in their homes. Repossession is a terrifying prospect and should always be the last resort.”
Citizens Advice suggests that if you fall behind you should make mortgage payments a top priority – you could lose your home if you fall behind – and let your lender know if you are having problems rather than simply stop paying or miss payments. Get free, independent advice as soon as you realise there’s a problem (don’t wait until you’re threatened with court action) and see if your lender will agree to reduce your monthly interest payments or make other adjustments.
You may also be entitled to benefits, tax credits and other help if you are struggling. Don’t ignore court papers and court hearings and, if facing repossession, find out if you qualify for the government’s mortgage rescue scheme, which may allow you to sell your house but continue to live in it and pay rent. Ask your local council for details.
Mortgage directive
In a busy week for the CML, the organisation also said it was concerned about a proposed European directive on mortgages that could have serious implications for mortgage and housing markets in many European countries. The European commission said it wanted to introduce measures that would reinforce responsible lending and borrowing.
The measures include: a “cooling-off” period for borrowers of at least 14 working days after a mortgage offer has been made; compensation for consumers if credit is rejected because a reference agency supplies an inaccurate report; the right for borrowers to make under- and overpayments without penalty, and for them to be able to draw down in the future any overpayments they have made; and a ban on arrears charges if payment problems arise that are beyond the control of the borrower.
The CML argued that, while some UK lenders already allow under- and overpayments, introducing it across the board would impose costs on lenders and could make all mortgages more expensive. It argued that the other measures could also result in added costs for mortgage providers as well as leading to uncertainty for firms, which may make it more difficult for higher-risk customers to obtain mortgage finance.
The CML said: “Measures seeking to protect consumers may not be in their wider interests if they result in exclusion from the market for large numbers of customers. Additionally, all customers could face higher costs to cover the provision of measures that are used only by a few.”
Source: http://www.guardian.co.uk/money/2011/aug/11/home-repossessions-fall-arrears-timebomb
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