Commentary: Home lending still on shaky ground

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Asharp drop in the number of court orders for repossession in the third quarter yesterday confirmed a trend already seen in the mortgage lenders' statistics - fewer people are losing their homes. But this does not mean the underlying situation in the housing market is getting any better.

Indeed, it may be deteriorating again as unemployment creeps up despite lower interest rates. For some building societies the drop in repossessions is also storing up financial trouble.

The good news is that during the third quarter 34,474 applications for repossession reached the courts, 32 per cent fewer than the 51,037 recorded by the Lord Chancellor's department a year earlier. Orders made for repossession fell 23 per cent over the same period.

In the first nine months of this year there were 99,592, some 6 per cent fewer than a year earlier. In the first nine months 53 per cent of orders were later suspended compared with 47 per cent in the same period last year.

In July the Council of Mortgage Lenders said members repossessed 35,750 homes in the first half of this year, an 8.2 per cent drop on the previous six months. Halifax, the largest building society, reported a 40 per cent fall.

These numbers reflect a change of behaviour at the time of the mortgage rescue initiatives promoted by the Government last year. Lenders began to accept partial payment of interest and tried not to repossess where there were any prospects of eventual payment.

One helpful trend is that last year's crisis cleared out many of the most extended borrowers, including some hopeless cases with multiple debts. This year is about basically sensible people in difficulty because of unemployment, and lenders are happier to help them.

But letting borrowers off interest payments does not stop the clock ticking on their arrears, which were continuing to creep up in the first half as unpaid interest was added to existing debts. Bad debt provisions at many building societies will continue rising because they are linked to arrears, even though the repossession figures are falling.

These high costs will accelerate mergers of weaker societies even if there is a continuation of the modest improvement in new arrears cases reported by some big lenders.

Though the fall in repossessions does not reflect a better housing market, it will indirectly help stabilise it by reducing the number of forced sales of the kind we have seen in this week's auctions.

And, if it is any comfort to people selling their homes, one well placed insider says the bargains do not look cheap when you examine the terrible state of most of the houses and flats that were sold.