Falling repossession figures not painting the real picture
It is always sad to see someone lose their home for failing to keep up with their mortgage repayments, but this happened to 9,800 families during the first three months of 2010.
On the brighter side though, the Council of Mortgage Lenders (CML) claims that this figure was down 7.5% compared to the number reported for the final quarter of 2009 and lower than the same period a year ago when 13,200 homes were repossessed.
So are we out of the woods? Will repossessions continue to fall? I’m not so sure.
I feel that, should there be further economic shocks such as rising unemployment or higher interest rates, there are many more homeowners out there who are at risk of falling into mortgage arrears and eventual repossession.
With some economists saying that rises in unemployment cannot be ruled out, and with inflation for April sitting at just under 4% (nearly double the previous government’s target), one has to be a little apprehensive.
At the moment, while exceptionally low interest rates are helping to keep mortgage payments down, some people are using redundancy payments or credit cards to meet their mortgage commitments.
If interest rates were to go up and unemployment increase, then I fear many families will struggle even more, which could well result in their homes being repossessed. Are we in the calm before the storm?
Now let’s look at the CML and the data it’s not recording:
Sale and rent back schemes
Many of these sales are conducted to allow the homeowner to stay in the property and pay rent, effectively becoming a tenant. While the home has not been officially repossessed, it is owned by someone else, so these sales are not included in the CML’s statistics.
In 2008, The Office of Fair Trading (OFT) estimated that during the previous few years some 50,000 homes had been sold this way and it is thought that up to half of these were sold in 2008 alone.
'Sale and rent back' was not an option back in 1991 when 76,000 homes were repossessed and I believe that the true figure this year if 'sale and rent back' were included, would be substantially higher and perhaps getting closer to those figures back in 1991.
Second and third charge holders
The CML is only collecting the number of first charge holders (a first charge is a mortgage that has the first claim over the property offered as security in the event the borrower defaults on their contractual repayments). There is no record of how many second or even third charge holders, usually secured loan companies, are repossessing homes.
It usually takes around 12 months to have a home repossessed from the time mortgage payments are missed and all other avenues apart from repossession have been exhausted. It can be argued therefore that the figures released are based upon householders who experienced difficulty up to almost a year ago.
Mortgage Pre-action Protocol
The introduction of the Mortgage Pre-action Protocol - which aims to ensure that lenders take all reasonable steps to avoid repossession and only take homeowners to court over mortgage arrears as a last resort - could be delaying what could eventually be a higher repossession statistic. Under such schemes the delayed mortgage payments are added to the mortgage, which some see as just helping to build up the debt.
When you add all this into the pot you cannot help but ask, “are we getting a true reflection of the state of the repossession market? Should the house repossession figures really be higher? Are we getting the full picture?”
Advice if you are struggling to meet your mortgage payments
• Make sure you pay your priority debts such as mortgage, council tax and utilities first, before paying your unsecured borrowings
• Contact your mortgage lender sooner rather than later.
• Visit the government website direct.gov.uk to see if you qualify for any of the mortgage rescue schemes.
Finally, one sobering thought. Many homeowners are not aware that any capital debt still owed to the mortgage company after the repossession and subsequent sale of the property can be recovered by the lender for a period up to 12 years in the UK. This counts from the date of the last payment or written acknowledgement of the debt and applies on any sole or joint mortgage account.
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As the name suggests, secured loans require security, or “collateral”, usually in the form of property, a motor vehicle, or another valuable item, as a guarantee for the loan. This effectively reduces the level of risk to which a lender is exposed, as the lender has a claim against your home, or other effects, if you default. Secured loans are often available at competitive interest rates. Types of secured loans include mortgages, logbook loans and some types of hire purchase where the loan is secured on the goods you’re buying and these are repossessed if you default.
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.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.