The number of people who had their homes repossessed, after being unable to keep up payments on their mortgage, rose by almost 30 per cent during the first half of the year, according to new figures published yesterday, as homeowners struggled under the burden of higher interest rates.
Some 14,000 homeowners had their properties repossessed between January and the end of June, according to the Council of Mortgage Lenders, compared with 10,800 during the same period last year and 11,900 during the second half of 2006. Government figures also showed an increase in personal insolvencies during the second quarter of the year, compared with the same period in 2006. The number of people declaring themselves bankrupt was up 7.7 per cent to 16,258, compared with the second quarter of last year.
Personal insolvencies were down on the first quarter of the year, which typically sees the highest level of consumers falling into debt problems, following the expensive Christmas period.
Quarter on quarter, bankruptcies were down 2.9 per cent, while the number of taking out Individual Voluntary Arrangements, which allow over-indebted consumers to write off some of their borrowings, were down more than 15 per cent.
The sharp fall in IVAs has in part been caused by the tougher line taken by the banks in recent months. Several of the UK's largest lenders clashed with IVA providers over the past nine months, complaining that some have been advertising them as an easy way of getting out of their debts. IVAs have to be approved by 75 per cent of an individual's creditors by value, and some banks have begun to turn down more IVA applications.
David Mond, the chief executive of ClearDebt, an Aim-listed IVA provider, said lenders were "denying the over-indebted their right to debt-resolution", blaming other IVA companies for making the process too costly for creditors.
"There will be a debt crisis in this country unless creditors stop trying to dam the flood of people who can no longer afford the credit they have been given," he said. "Debt resolution schemes that are achievable and affordable - and which represent a debtor's best efforts - should not be frustrated by the banks. Market forces are driving down IVA fees but yet there is little sign that creditors will stop putting artificial obstacles in the way of consumers who are genuinely trying to deal with their debt."
Mike Gerrard, the head of personal insolvency at the accountants Grant Thornton, said: "It may look as if personal insolvencies have finally reached a plateau. However, evidence points to a peak still being someway off. The existing mountain of debt still stands, consumer spending remains unabated and there is a strong likelihood of more interest rate rises ... which will cause more individuals to resort to bankruptcies and IVAs."
Michael Coogan, the director general of the CML, played down the sharp rise in the number of home repossessions, saying the total was still very small by historical standards. "Interest rates are clearly higher than many were expecting, and are set to remain so," he said. "And the greater risks inherent in sub-prime lending are resulting in ... higher levels of repossession in that part of the market.
"The vast majority of mortgage borrowers will continue to cope, even in a market where affordability is stretched. Anyone who thinks they may face difficulties should talk to their lender early to explore their options - lenders see possession as a last resort, but allowing arrears to mount up makes repayment difficulties more difficult to deal with."Reuse content