Less than 1 in 400 mortgages led to repossession in 2007, according to the Council of Mortgage Lenders (CML). At 0.23%, the repossession rate was less than half the rate experienced throughout the first half of the 1990s. And at 13,500 the number of repossessions in the second half of 2007 was almost identical to the number in the first half of the year (13,600).
The CML had previously forecast that there would be 30,000 repossessions in 2007, but the actual figure is nearly 10% lower than forecast, at 27,100. Although repossessions have risen since their remarkable low point of fewer than 10,000 a year in 2003 and 2004, they continue to represent a tiny fraction of all mortgages.
Fewer than half a per cent of all mortgages had accumulated arrears of more than six months at the end of 2007, and the profile of arrears has returned to virtually the same levels as in the first half of 2006. The rate of 6+ month arrears is only around one-seventh of the level experienced in the early 1990s.
Looking ahead, it remains difficult to forecast the likely level of arrears and repossessions in 2008 as conflicting factors are at work. The good news is that the impact of payment shock is likely to be more muted than previously expected, thanks to the downward path that interest rates now appear likely to follow. But there is no room for complacency. Funding pressures remain, and are having a specific impact on the capacity of the adverse credit sector to meet demand. This may affect arrears and repossessions.
Over the past year, the CML and lenders have become concerned about the activities of sale-and-leaseback companies, which typically offer to buy properties from home-owners at less than their market value, and rent them back to the former owner as a tenant. In theory, this type of arrangement could be a good solution for some borrowers facing mortgage problems. But there is no regulation of this sector and the risk of consumer detriment seems high. The CML, Citizens Advice and Shelter jointly wrote to the Treasury late last year to urge regulation of this emerging activity. This week the organisations wrote jointly again to urge fairer treatment of home-owners within the benefits system: at the moment a home-owner who loses their income is severely disadvantaged compared with a tenant in the same position. And the CML has also written to the Treasury to outline the many steps that lenders take to avoid repossessions.
Michael Coogan, CML director general, commented: "Lenders take their responsibilities to borrowers facing repayment difficulties very seriously, and many go to exceptional lengths to provide debt counselling, reschedule payments, extend loan terms, or in some circumstances even allow payment breaks. They abandon repossession action right up to the last moment if they can reach a payment solution consistent with both the borrower's and the lender's interests.
"Despite this, the number of repossessions is likely to be higher in 2008 as a result of wider issues in the economy and the mortgage funding markets. No-one is necessarily to blame for this - even the best risk assessment cannot provide a crystal ball insight to the future for each particular borrower. But that is all the more reason to ensure that there is a fair and reasonable balance of responsibility between consumers themselves, their advisers and lenders, and the system of state support to ensure that home-ownership remains sustainable and that repossessions are minimised. Anyone who thinks they might be heading into difficulty should contact their lender, as problems are easier to resolve if they are tackled at an early stage. Lenders want to avoid repossessions just as much as borrowers do."
