Debt grows for 300,000 home owners: Repossessions are down, but increase in mortgage arrears is seen as storing up trouble for the future

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The Independent Online
MORTGAGE lenders repossessed more than 35,000 homes in the first half of this year, according to figures released yesterday. More than 300,000 households are now at least six months in arrears with payments, storing up big problems for the future.

Although fewer homes were repossessed than in the second half of last year, the underlying trends in arrears and repossessions show little sign of improvement.

Far more people would have lost their homes this year if banks and building societies had not

negotiated emergency debt-

rescheduling deals. However, lenders may not be prepared to let debts mount indefinitely.

Tim Melville-Ross, chairman of the Council of Mortgage Lenders and chief executive of Britain's second-largest building society, the Nationwide, warned that homeowners who refused to switch to tenancy agreements to solve arrears problems might face repossession.

Only handfuls of borrowers have taken up offers to move into mortgage-to-rent schemes pioneered in agreement with the Government last year. Many have refused to become tenants.

Nationwide is working on a new mortgage-to-rent scheme and Mr Melville-Ross said it might have to take a tougher line in switching people into tenancy agreements.

According to the council, lenders repossessed 35,750 houses in the six months to the end of June, 8.2 per cent fewer than the 38,930 possessed in the second half of 1991. That was the first half-year reduction since 1988.

But the number of loans in arrears by six months or more at the end of June rose to more than 305,000. This means that more than 3 per cent of the country's 9.8 million loans had a serious arrears problem by the end of the first half of this year.

There were 191,280 loans in arrears by 6 to 12 months at the end of June, up from 183,610, while loans in arrears by 12 months or more rose to 113,860 from 91,740 at the end of 1991.

Figures published by the Lord Chancellor's Department yesterday showed that 33,170 possession orders were made by the courts in England and Wales in the second quarter of this year, a slight drop on the 35,713 orders made in the first quarter.

These paint a much bleaker picture of possessions than the lenders' figures. But not all court possession orders lead to evictions, and more than one order may be made against a single property.

Labour warned that with a growing number of people in arrears, at least 150,000 more repossessions could be expected over the next two years.

Jack Straw, Labour's housing spokesman, said: 'What is needed now are measures to kickstart the market, including giving local authorities the power to purchase empty unsold properties to house homeless families and to get the market moving.'

He added that the promise by Norman Lamont, the Chancellor of the Exchequer, that mortgage rescue schemes would reduce repossessions by 40,000 had been 'a hollow election fraud'.

However, Tony Baldry, Under- Secretary of State for the Environment, said the Government had kept its side of the bargain. It had worked closely with the lenders and had done what they asked by allowing income support for mortgage interest to be paid directly to building societies.

Mark Boleat, the council's director-general, admitted that total repossessions for this year would have been on course to exceed 100,000 if lenders had not offered help to more borrowers. Lenders repossessed more than 75,000 homes last year.

The outlook for the second half of this year depends on 'what happens in the economy and the housing market', he said.

Lenders have been making even greater efforts to counsel borrowers and reschedule payments. Borrowers may continue to pay some of their monthly payments but the unpaid amounts pile up as arrears.

Mr Boleat said that the council would like to see stamp duty on house purchases permanently abolished, and was in favour of housing benefit - now available only to people renting - being made available to home owners, a move he agreed could cost up to pounds 1bn.

John Wriglesworth, a building society and housing market analyst at the stockbroker UBS Phillips & Drew, estimated that as many as 1.5 million homeowners have mortgages which are larger than the value of their homes, an aspect of the housing debt trap that is preventing people from moving home.

Dr Wriglesworth added that debt rescheduling was helpful but was only 'putting off the evil day' for many borrowers.

Facing the crisis, page 6

Leading article, page 20