Outlook for repossessions remains uncertain
The number of people losing their homes to repossession hit a 14-year high last year, with some 46,000 cases.
Although forecasts that repossessions could hit 75,000 during 2009 didn’t come to fruition, the latest stats show a sharp increase from the 40,000 repossessions seen in 2008.
The Council of Mortgage Lenders (CML), which compiled the figures, says the number of properties taken into possession slowed as the year went on. There were 10,200 cases in the final three months of 2009, down 13% from the previous quarter.
As a result, the CML has repeatedly downgraded its repossession forecast; in June it revised its original forecast of 75,000 repossessions to 65,000, and in November it settled on 48,000 as the most likely figure.
Meanwhile, the Ministry of Justice has also released its repossession stats, which show the number of mortgage possession claims made by lenders hit 20,061 during the final three months of the year - down 26% on the same period in 2008 and down 15% from the preceeding three months.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, says the fall out from the downturn in the housing market is proving “relatively modest” compared with the experience of the early 1990s.
What does the future hold?
As many as 205,000 homes are forecast to fall behind with their mortgage payments this year – resulting in a possible 53,000 repossessions.
However, the CML admits this forecast is a “little pessimistic”.
The slowing rate of unemployment and government schemes helped keep people in their homes last year, says Michael Coogan, director general of the CML.
Rubinsohn adds: "Looking forward, we suspect that the number of repossessions in 2010 will be broadly in line with that seen over the past 12 months – that is, 46,000.
"Significantly, we continue to believe interest rates will remain on hold for much of this year, helping to keep down mortgage costs and there are some encouraging signs that the jobs market appears to be stabilising with employment actually rising in the latest figures."
However, job losses tend to lag behind the recession. In addition, some economists warn the interest will increase their year because of the rising rate of inflation.
Brian Murphy, head of lending at independent mortgage broker Mortgage Advice Bureau, says: "If rates were to rise materially then we could see an increase in arrears and repossessions in the future.”
Some 188,300 people were behind on their mortgage payments at the end of last year. This was lower than the 195,000 the CML had anticipated, and 3% lower than at the end of the third quarter - but still 3% higher than at the end of 2008.
Mortgage lenders report the number households facing only modest difficulties meeting their payments is slowing, thanks to low interest rates. However, those with more severe problems may be stabilising their arrears but are not recovering from them – putting them at risk going forward.
"We are not out of the woods yet - 2010 will still be a challenging year for many borrowers, and some households will inevitably find their finances being squeezed if and when interest rates do eventually rise,” says Coogan.
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.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
“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.