Repossessions up to eight-year high
The number of homes repossessed by mortgage lenders rose by a third last year as household costs reached breaking point. According to the Council of Mortgage Lenders, there were 27,100 repossessions in 2007, 32% more than in 2006, the highest since 1999 and a massive leap from 8,500 in 2003.
However, the CML said its worst fears – repossession figures of 30,000 or more – were not realised. And, while some of the blame will be laid at the door of the credit crunch that hit home in autumn, the number of houses repossessed in the last six months of 2007 was actually lower than in the first half.
But while home repossessions affect a tiny fraction of the mortgage market – fewer than 1 in 400 mortgages led to one in 2007 – wider issues in the economy and pressures on mortgage funding mean that repossessions could reach 45,000 this year, warned Michael Coogan, director general of the CML. He added: “Anyone who thinks they might be heading into difficulty should contact their lender, as problems are easier to resolve at an early stage. Lenders want to avoid repossessions as much as borrowers do.”
The homeowners most vulnerable to repossession are first-time buyers, according to solicitors Moore Blatch, which conducted a survey revealing that 68% of lenders believe buy-to-let repossessions will rise.
But it’s not all bad news for first-time buyers. Developers Wimpey have cut the cost of reserving homes on its new Stratton Court development in Pentwyn, Cardiff – to 99p. The normal reservation fee would be between £100 and £500, but the cost has been slashed to boost a flagging housing market, while the firm is also prepared to stump up the cost of a 5% deposit, stamp duty and £600 towards legal fees.
Similar tactics were recently criticised by the CML, however, which warned homebuyers to be wary of developers using incentives such as deposit payments to mask the inflated value of some new build homes.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
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 catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.