Home loans warning

BUILDING societies have been told to tighten up further on the way they provide for bad debts in a move that could dent their profits even further than expected, writes Maria Scott.

The warning comes in guidance from the societies' regulator, the Building Societies Commission. In particular they are told to take care in providing for the increasing number of loans where arrears accumulate because a borrower is allowed an interest holiday or reduced payments.

Concessions like this are the main reason for the reduction in repossessions in the first half of this year to 35,750, 8.2 per cent fewer than in the second half of 1991. But the consequence was that the number of loans with arrears of more than six months rose sharply to a record 305,000.

The commission has told societies that this may have the short- term effect of reducing repossessions, but there may be no underlying improvement in a society's position.

'Thus, unless some adjustment is made to take account of this, an underprovision could result in the current year,' it said.