In a further dramatic sign that the property market is stabilising, if only temporarily, the Council of Mortgage Lenders (CML) said yesterday that the number of homes being repossessed by lenders fell by 10 per cent between April and June, compared with the previous quarter.
Some 11,400 homes were repossessed – 14 per cent more than in the same period last year, but a marked slowing of the previous annual rate of increase, which was almost 50 per cent.
Still, figures from the Insolvency Service also revealed that 33,073 people were declared insolvent, a 27 per cent rise on last year and the highest level since records began in 1960. The data suggest mortgage lenders are showing more forbearance than the generality of creditors. The CML pointed to a more understanding attitude from lenders, better advice to struggling homeowners from debt counselling services, and lower interest rates as the keys to the encouraging news.
The development is especially surprising given the sharp increases in unemployment in recent months. While negative equity is also on the rise, fewer householders are being forced to crystallise those losses, much of which would in any case appear on bank and building society balance sheets as writedowns, thereby weakening them.
The increase in the number of homeowners falling behind with their mortgage payments has also showed signs of moderating. The number of home loans with arrears of more than 2.5 per cent of the mortgage balance was 205,600 in the second quarter of 2009, according to the CML. That was only marginally higher than the 203,900 in difficulties at the start of the year.
Jackie Bennett, the CML's policy chief, urged caution. "With unemployment rising and the economy still weak, the outlook will remain challenging for the rest of this year and into 2010," she said.
Figures from the Ministry of Justice on the number of court orders for possession being issued, an earlier stage in the process, suggested that there may be worse news to come. At this point, lenders and homeowners can still negotiate, and not all of these orders are enforced. But they do suggest that lenders and homeowners may be only postponing ultimate eviction.
Kay Boycott, a spokeswoman for Shelter, said that although many lenders are showing flexibility "Further action is needed if we are to prevent a second devastating wave of repossessions."
Changes in the court process has also slowed the flow of repossessions. New rules state that repossession orders can only be issued if lenders have tried hard to reach a deal with defaulters. These "pre-action orders" came in last November, and pushed the number of orders down, by almost 50 per cent. Other government schemes, such as "mortgage rescue" and improved housing benefits have had a more limited impact.
Brigid O'Leary, the senior economist at the Royal Institution of Chartered Surveyors, said: "The Ministry of Justice has suggested that the mortgage pre-action protocol may be delaying the issue of possession orders. Further, many mortgage holders will be vulnerable to future increases in rates. For the time being, the limited number of forced sales on the market will provide some support to prices."