Slowing repossessions could be false dawn
The number of people losing their homes to possession during the recession dropped during the spring, thanks to low interest rates and better communication between lenders and borrowers.
Despite forecasts for a sharp rise in the number of repossessions during the second quarter of the year, the latest figures from mortgage lenders in fact show the opposite. There were 11,400 cases of lenders taking possession of property between April and June, down 10% from the number seen in the first three months of the year.
However, possessions are still up 14% on an annual basis and are likely to remain high for some time as unemployment hurts homeowners.
But the Council of Mortgage Lenders (CML) says the latest possession figures show banks and building societies are showing forbearance to borrowers who fall behind with their repayments and are offering support and help to those that have a realistic chance of resolving their payment problems.
Back in June, the CML downgraded its repossession forecast for 2009, from 75,000 properties to 65,000. It is now possible that even this revised figure may not be realised, as the total number of possessions in the first half of 2009 was 24,100.
Jackie Bennett, head of policy at the CML, says: "Clearly, low interest rates are also helping borrowers who are committed to working to resolve their arrears, paying what they can - and when they can - towards their mortgage, and maintaining good communication with their lender.”
However, she warns that rising unemployment and with the UK still in recession, the situation will remain “challenging” throughout this year and into 2010.
Although repossessions are lower than previously anticipated, the number of borrowers missing payments continues to rise. There were 270,400 loans in arrears by more than three months by mid-year, an increase of nearly 6,000 since March.
Dominic Toller, managing director of PropertyEarth.net, an online portal for chain-free properties, warns the lack of new mortgages means the better-than-expected possession figures could be a false dawn.
"We expect that the second half of this year will see a significant rise in the number of repossessions as many borrowers come off fixed mortgages to find they don’t have significant enough equity in their homes to remortgage onto a comparable rate,” he explains.
“There is a risk that this potential rise in mortgage cost, coupled with a growing level of unemployment and an economy still in recession will lead to many borrowers falling into arrears.”
The type of borrowers losing their homes also appears to be changing, according to Toller. While at the start of the downturn, buy-to-let landlords where the worst hit, it now appears that families are increasingly suffering, with PropertyEarth.net reporting a rise in the number of three and four-bedroom homes being repossessed.
The CML figures show that buy-to-let arrears showed “considerable improvement”, with a decrease in the number of landlords missing payments.
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.
A property chain is a line of buyers and sellers (the “links”) who are all simultaneously involved in linked property transactions. When one transaction falls through – for instance, someone can’t get a mortgage or simply withdraws their property from sale, the entire chain breaks and all the transactions are held up or even fail entirely.
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.
“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.