Repossessions up 92%
The number of homeowners facing repossession has jumped by more than 90% over the past 12 months, according to official statistics from the financial watchdog.
The Financial Services Authority’s (FSA) latest mortgage lending data shows that, in the third quarter of 2008, the number of new house possessions increased by 92% compared to the same period the previous year, with 13,161 new cases.
The data refers to possession orders, which are issued to lenders by the court. However, not all possession orders lead to people being evicted from their homes.
The number of borrowers missing payments also increased during the period, with a 24% rise in borrowers three months in arrears. Around 2.9% of all mortgage borrowers are now behind with their repayments, with those struggling typically only managing to repay 42% of their full monthly payments.
The FSA reports that Britons now collectively have £1,194 billion of mortgage debt.
Despite the government announcing several initiatives to help struggling homeowners since September last year, experts still believe the number of arrears will increase – and potentially surpass the levels seen in the last recession.
Seema Shah, property economist at Capital Economics, warns that rising unemployment will result in more people missing payments.
“Government measures to limit the number of households in mortgage arrears who eventually lose their home will only go so far,” she adds. “Accordingly, we think it likely that possessions will surpass the early-1990s peak of 75,500.”
Citizens Advice Bureaux has reported a 35% rise in the number of people contacting it about mortgage and secured loan arrear problems, with enquiry numbers hitting 77,324 in September 2008.
Sue Edwards, head of consumer policy at Citizens Advice, says it is currently dealing with 325 new cases involving mortgage arrears every working day.
“To prevent this situation getting worse, it is vital that mortgage lenders treat borrowers in arrears fairly and sympathetically, and do everything in their power to help them come to a workable solution over repayment arrangements,” she says.
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.
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.
“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.