About 40,000 homes were repossessed in 2008, according to the Council of Mortgage Lenders – slightly fewer than expected, but still a 54% increase on last year’s figure and the highest total for 12 years. With the CML predicting that the number could rise to 75,000 next year as the economy continues to deteriorate, mortgage lenders are likely to find themselves under increasing pressure from the Government to go easy on over-stretched borrowers. Rising repossession rates are not exactly ideal with an election looming...
By the end of 2008, says the CML, about 183,000 mortgages had arrears worth at least 2.5% of the outstanding balance – which means that 1.57% of all mortgage borrowers have fallen seriously behind on payments. That may sound a relatively small proportion, but it’s a considerable jump from the figure of 1.07% at the end of 2007. Apparently buy-to-let borrowers are having a particularly hard time, as over-supply in the rental market squeezes yields.
Not surprisingly, the Government is keen to be seen helping borrowers out, and it’s introduced various measures to help – particularly for those who’ve recently been made redundant. These include earlier income support to cover interest payments, and even the option to defer repayments for up to two years. Lenders also have a vested interest in the sympathetic approach, if it means not writing off the loan, so many of them have been doing as they’re told: apparently the repossession rate actually went down in the fourth quarter of the year.
One alarming development is that an increasing number of homeowners are choosing to hand back their keys or abandon their houses, thus defaulting on their loans. The CML is arguing that this is a very bad idea, not least because it will torpedo your chances of getting any other loans any time soon. And with lenders so willing to play ball, there may well be other options. After all, their balance sheets are currently in such a bad way that they’ll be desperate to get their money back one way or the other, even if it takes longer than planned.
Of course, the alternative argument is that all this is just delaying the inevitable and prolonging the agony; perhaps it would be better for the economy if the worst-quality loans were weeded out of the system as rapidly as possible, allowing the market to return to some kind of normality. However, this argument is a lot easier to make in principle than practice. Since the Government did very little to discourage people from buying over-priced houses during the boom years (quite the reverse, some might argue), it's probably fair enough that they should be providing a safety net now. Besides, invoking moral hazard would be political suicide...
In today's bulletin:
Mortgage lenders under pressure as repossessions soar
Saab throws in towel as car production plummets
Blind Man gaffe highlights the danger of mail merges
Mills & Boon rails at 'frigid' Virgin
Tips on breaking through, from YouTube