News: Ghosts of '92 invoked as homeowners hit trouble

Repossessions on the rise; insurer to bypass endowment-claims firms; public urged to join debate on cost of financial advice

The number of repossession orders granted by courts on behalf of mortgage lenders rose by nearly 25 per cent in the first three months of this year - the highest for nearly a decade.

The number of repossession orders granted by courts on behalf of mortgage lenders rose by nearly 25 per cent in the first three months of this year - the highest for nearly a decade.

Figures from the Government's Department for Constitutional Affairs revealed a total of 14,048 orders, compared with 11,250 in the first quarter of 2004.

Although a court can grant an order for immediate possession, many such requests become "suspended orders". A new repayment deal is then arranged between the homeowner and the lender. This means that the mortgage continues to be paid, along with some of the arrears that have built up.

Bernard Clarke, spokes-man for the Council of Mortgage Lenders, said the rise in the number of people getting into serious difficulty with their mortgage repayments was mainly down to the increased cost of borrowing.

"With four rate rises in 2004 [to 4.75 per cent], there will be those on the margin who cannot keep up," he said.

However, Mr Clarke added that a rise in court orders did not automatically translate into a rise in repossessions. "We may be seeing a big percentage rise in the [order] numbers, but we're starting with very low numbers."

The increase in repossession orders has reawakened the spectre of re- cession, especially the dark days of the early 1990s. In 1992 the UK economy was hit by record bankruptcies, high unemployment and interest rates of up to 15 per cent. Home repossessions shot up to 32,000, several times the normal figure. By the end of 1993, more than 500,000 households were at least three months in arrears on their mortgages.

Pru's direct action

The insurer Prudential will no longer pay out to third-party companies chasing compensation on behalf of the victims of endowment mis-selling.

All recompense will now go direct to the customer, complaint-handling companies were told in a letter sent out last week.

Individuals mis-sold endowments were entitled to 100 per cent of their compensation, said the Pru's UK chief executive, Mark Wood. "[It is a sum] calculated to put the customer back into the position they would have been if they had taken out a repayment mortgage."

It was unfair, Mr Wood said, that - on average - a quarter of that money went to a third party, when the customer could get the whole sum just as quickly by dealing direct with the insurance company.

The Pru had "no axe to grind with third-party complaint handlers", nor was it telling customers not to pay third parties, Mr Wood stressed. Rather, it wanted people to know that they had the option of pursuing a claim on their own behalf.

"We are concerned that some customers may not know they have the option of dealing with us directly - and that this will cost them nothing," he added.

According to the insurer, around £1.7m has been paid out in compensation to customers via third-party companies in the past 12 months. Commission on this is estimated at £438,000. In some cases, complaints handlers were paid as much as 50 per cent, the Pru claimed.

The insurer's decision came into effect immediately. Where customers are already dealing with the company via a complaint handler, money will now be paid direct to the victim of mis-selling. He or she will then have to pay the complaints firm.

The third-party firms defended their role in guiding consumers through an often tortuous process. "It's a bit rich for insurers guilty of mis-selling in the first place to complain about how unfair the claims process is," said Tim Moore of endowmentclaims.biz.

Research showed that one in four endowment policyholders did not have any confidence in insurers, he said, "and think they will do their best to avoid paying compensation".

Figures from the Pru show that some 2.4 million people across the UK are relying on an endowment to pay off their mortgage.

Fees forum launched

Savers who have paid, or are thinking about paying, for financial advice are being asked to take part in a public debate.

The Association of British Insurers (ABI) has launched an online forum examining the role of commission in financial advice. As well as hearing from independent financial advisers (IFAs), insurers, fund managers and other companies involved in providing savings products, the ABI wants consumers to give their views on paying for advice.

The debate is taking place against a background of reform within the industry. In the past, consumers had a simple choice between visiting an IFA who scours the whole market for products, or a "tied" adviser acting on behalf of just one company. But from 1 June, there will be a third choice: a "multi-tied" adviser who will sell products from a limited range of providers.

Paying for independent financial advice through commission remains a thorny issue, however. Many people believe IFAs offer them products that pay the biggest commission fees, rather than those that that are most appropriate to the individual.

From 1 June, IFAs must also offer the choice of an upfront fee, but there are fears that this will be offputting and expensive.

To take part in the ABI debate, go to www.abi.org.uk/commissiondebate