Rising number of borrowers at risk of repossession
The number of borrowers at risk of having their homes repossessed has soared in the past year with 38,688 possession claims made in the first three months of 2008 alone.
Official government figures show that possession claims made by banks in the first quarter of 2008 were up 7% from the previous quarter and 16% from the same period last year.
They also show that the number of possession orders issued by the Country Courts has risen by 17% from 2007 to 27,530.
Possession claims are made by mortgage lenders when a borrower fails to meet their repayments for a certain period of time. Possession orders are those granted by the courts for the lender to evict the borrower and take the property into their possession.
However, the figures do not indicate that actual number of repossessions as a proportion of orders will be abandoned by lenders if an alternative solution is found.
For example, in 2007, 137,600 possession claims were made by lenders but there were only 27,000 actual repossessions. The actual number of repossessions in the first quarter of 2008 will not be published until August.
The Council of Mortgage Lenders has forecast 45,000 repossessions in 2008. This figure was made in October, in the early stages of the credit crunch, and a spokesman for the CML says a revision could be imminent to take into account the increasing pressure on homeowners.
In light of the figures, the government has unveiled at £10 million package of support for homeowners at risk of repossession.
Chancellor Alistair Darling says the package includes £9 million funding for face-to-face debt advice provided by third sector partners including Citizens Advice Bureau.
The support initiative also includes free legal representation at county courts throughout England for households at risk of repossession. The government says it is now looking at additional ways of offering debt advice to people.
Six major UK retail banks - Lloyds TSB, Barclays, Royal Bank of Scotland, HBOS, Abbey and HSBC - have all agreed to work closely the government to investigate how best to help customers. They are also considering whether banks could provide extra financial support for struggling borrowers.
Michael Coogan, director general of the CML, says: "No one wants to see repossessions rise. But risk is a part of life, and for some households circumstances change and they cannot get back on their feet.
"However, most people who suffer payment difficulties can get out of trouble by taking good advice, prioritising their debts, and communicating with their lender early."
In the past, lenders have come under criticism for being too quick to issue possession claims on borrowers with mortgage arrears.
Sue Edwards, of Citizens Advice, says: “We have seen a sharp rise in the number of people coming to us with mortgage arrears, and evidence that in too many case lenders are using court action as a first rather than a last resort."
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.
“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.