Can you trust last year's house repossession figures?
So its official then, the Council of Mortgage Lenders (CML) says that only 36,300 homes were repossessed throughout 2010, a drop of 24% on the year before. That's close to half the number of homes that were taken back by lenders in 1993. So what's the problem?
The problem is, in my opinion, that although the statistics are collected correctly by the CML they do not accurately reflect current market conditions and the situation is far different to how it appears. Here are my thoughts.
The impact of 'Sale and Rent Back' Schemes
The first area to look at is the number of homes being sold by families to private landlords, under 'Sale and Rent back' (SAR) schemes, or flash sales. These schemes weren't around in 1991 at the height of the last repossession crisis when around 76,100 homes were repossessed.
Back in October 2008, The Office of Fair Trading (OFT) said, "It is likely that there are upwards of 1,000 firms, together with an unknown number of non-professional landlords, who have conducted about 50,000 transactions to date". That was well over two years ago!
Since that announcement the SAR industry has gathered momentum leading to the intervention of the Financial Services Authority (FSA) and full regulation being implemented last July, rightly so in my opinion.
Based on the OFT figures and on increasing consumer awareness of the SAR scheme I estimate that the number of homes sold under SAR in 2010 could be as many as 20,000.
Only first charge holders are recorded in the figures
Another damning factor is that the CML only collects the number of first charge holder repossessions, this is the main mortgage. There is no record of how many second charge holders, usually secured loans, who are repossessing homes. How many are there of these that the CML do not know about?
The effect of the Mortgage Pre-action Protocol
We haven't even thought about how the introduction of the Mortgage Pre-action Protocol back in 2008 could be a delaying factor in eventual repossession for some home owners. Some of these schemes just delay the inevitable and add further debt through delayed payments.
CML uses old data to make the repossession figures
All these aside I now have another argument to put to you; that the data put out by the CML is technically out of date as they can only record repossessions that were finalised during the year. It can take between six and 12 months to have a home repossessed, even longer now with the introduction of various government-backed schemes and these latest figures for 2010 are based upon householders who experienced difficulty up to almost a year ago.
So all those home owners that are missing the first payment this month and can no longer meet their mortgage payment, so in theory will not surface or appear on the CML register until late this year, if not next year!
The good, the bad and the ugly sides of the of Tracker mortgage
On the positive side those on Tracker mortgages and some on Standard Variable Rates (SVRs) have benefited from historically low interest rates for 24 consecutive months and I hear that many consumers are paying over the top each month in order to get their mortgages down.
Equally there are some that have been saved from repossession purely because the low interest rate has meant that their normal monthly mortgage payment has been reduced for example, from £1400 to around the £450 - £600 mark. The latter must be thinking are we about to see an increase in interest rates, is the end nigh for their 'Honeymoon period'?
You simply cannot ignore the unemployed, more so as their numbers are expected to climb again over the next 18 months as the austerity cuts begin to bite. Repossession figures will surely rise when those out of work can no longer pay their mortgages having exhausted family and friends with that one more monthly payment before it 'turns around'.
Redundancy and credit card payers
We also have some people using their redundancy payments to keep up the mortgage repayments, while there are an estimated one million people using their credit cards to meet their current mortgage commitments.
Chasing the mortgage shortfall debt for 12 years or more
Not many house owners are aware that any debt still owed to the mortgage company after the repossession and subsequent sale of the property is recoverable by the lender for a period up to twelve years in the UK. This counts from the date of the last payment or acknowledgement of the debt, and applies on any sole or joint mortgage account. I have many clients still paying back from 1990, that's 21 years ago!
Struggling to meet your mortgage payments?
• Your mortgage needs to be paid before your credit card commitments
• Contact your mortgage lender sooner rather than later
• Visit the government website www.direct.gov.uk to see if you qualify for any of the mortgage rescue schemes.
I do not accept that house repossession numbers are stable or falling as much as is being reported. I think consumers are becoming more adaptable and for many, a SAR scheme is an attractive proposition when faced with repossession as it can offer stability as the move from owner to a tenant can help keep the children at the same school, and the parents to stay nearby to friends. More importantly to many, no one need know what you have done, which can save awkward questions and embarrassment within the community.
I know what it's like to lose a home. I was one of eight children and it happened to my family when I was 15 years old.
With a tracker mortgage, the interest you pay is an agreed percentage above the Bank of England’s base rate. As the base rate rises and falls, your tracker will track these changes, and so rise and fall accordingly. If your tracker mortgage is Bank of England base rate +1% and the base rate is 5.75%, you will be paying 6.75%. Tracker rates are lower than lender’s standard variable rate (SVR) and as they are simple products for lenders to design, they usually come with lower fees than other mortgage schemes.
A homeowner’s worst nightmare; repossession is an action of last resort by mortgage lenders to recover money from borrowers that have failed to keep up with repayments on their mortgage or other loan secured on their home (see secured loan). Repossession is a legal procedure that has to go through several processes before the homeowner is evicted and the property reposed. These are: if a borrower keeps defaulting; the lender applies for a solicitor’s notice; the lender instigates possession proceedings through the court; at the court hearing a possession order is granted and sometimes a possession warrant; a bailiff is appointed and an eviction notice issued at which point the homeowner has two to three weeks to vacate the property.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.