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.

Time delay

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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If the mortgage company are a member of the Council of Mortgage Lenders, their code of practice says as a matter of good practice, capital debt following a repossession should only be pursued for 6yrs, not the statutory 12yrs. If the debt has not been acknowledged, or any payment made in the previous 6yrs, then any demand for payment should be challenged. Ask for help at your local Citizen's Advice Bureau on how to do this.

Time Limits to recover shortfalls following house repossession

If the lender obtains a “money judgement” at the time of the re-possession hearing then there is no set time limit for recovery of the debt, however, if the MJO is 6 years old then the lender has to reapply through the Court, otherwise lenders need to abide by specified limitation rules.
Generally, they have six years in which to recover interest and twelve years for capital sums; this limitation begins when the lender was first able to issue proceedings and would be much earlier than the date the property was repossessed; or the last time any payment was made irrespective of the amount; or the last time the debt was acknowledged by the client or his/her agent in writing.
If the debt is of a joint nature and only one of the party concerned is making a payment then the other person can be bound by the time limitation, even without their knowledge, e.g. if they were separated or divorced.

The Council of Mortgage Lenders (CML) announced a directive which came in to force on the 11 Feb 2000. Under this directive those that have not been contacted by the lender for more than 6 years from the date of the sale of the property will now not have to repay their mortgage shortfall debt.
Unfortunately this is a voluntary code and applies only to new cases and not those with existing shortfall debt repayments or where the lender has already started recovery procedures; therefore it is not legally binding on the lenders

There is a fact that needs to be mentioned which is a lot of people in debt prioritise non-essential items over bills.