Repossessions up 23%
The number of homeowners losing their properties to repossession jumped 23% over the past 12 months to June 2009.
New data from the Financial Services Authority (FSA) reveals that there were 13,610 possessions between April and June this year, up 23% on the same period in 2008. However, with lenders under pressure from the government to help struggling borrowers stay in their homes, the situation does appear to be improving. There were 1,274 fewer possessions in the second quarter of the year compared to the first - a decrease of 9%.
But with unemployment still on the rise, the number of homeowners getting into payment difficulties shows no sign of slowing. While the number of people falling into arrears for the first time only rose by 1% in the second quarter of the year, total arrears levels are up 30% on an annual basis – suggesting homeowners are struggling to clear their arrears.
In response to the payment problems facing many borrowers, the government recently launched a new website, mortgagehelp.direct.gov.uk, to advise people on the best plan of action when they fall behind on repayments. So far over 200,000 households have benefited from targeted government schemes and over 116,000 households have come to agreements with their lenders to ease the pressure.
Recent research from the Building Societies Association (BSA) suggests that borrowers who contact their lender promptly to inform of repayment problems are less likely to fall into greater trouble.
The BSA’s figures show 97% of people who had entered into arrears during the last two years had managed to hold onto their homes. In addition, 33% have repaid their arrears in full and 41% are currently paying their arrears, just 3% had their home taken into possession.
Paul Broadhead, head of mortgage policy at the BSA, says: “The results highlight the importance of borrowers contacting their lender as soon as they face potential payment difficulties, and seeking independent advice. Doing so enables the lender to consider all reasonable options to assist the borrower.”
Despite signs that struggling homeowners are increasingly managing to remain in their homes, experts warn arrears levels will continue to rise.
Seema Shah, property economist at Capital Economics, says: “With the rise in unemployment having much further to go, we see little prospect of a loosening in mortgage credit conditions. At the same time, it means that arrears and possessions are unlikely to have reached their peak just yet.”
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.