Home repossessions fall as interest rates stay low

Nicky Burridge,Pa
Thursday 11 November 2010 14:54

The number of people who had their homes repossessed fell to a two-and-a-half-year low today after rock bottom interest rates helped consumers keep up with their mortgage repayments.

Around 8,900 properties were taken back by lenders during the three months to the end of September, 27% fewer than during the same period of 2009 and the fourth consecutive quarterly decline, the Council of Mortgage Lenders (CML) said.

But commentators warned that levels could start to rise again as the impact of government spending cuts is felt, and homeowners receiving Support for Mortgage Interest (SMI) struggle to afford their repayments following a cut to the benefit.

Figures released by the Ministry of Justice also showed the first quarterly increase in repossession claims and orders made by courts in England and Wales for a year, suggesting repossession levels may start to rise again.

Paul Diggle, property economist at Capital Economics, said: "The continued fall in the numbers of arrears and possessions in the third quarter is encouraging.

"But figures showing an increase in possession orders being sought and awarded may mean that the improving trend will soon come to an end."

The Ministry of Justice figures showed that 18,931 repossession claims were made during the period on a seasonally adjusted basis, 4% higher than for the previous three months but 19% lower than during the third quarter of 2009.

These led to 14,138 repossession orders being made, 5% higher than in the second quarter, of which 47% were suspended orders.

The CML said 28,400 properties had been repossessed during the first nine months of the year, indicating the total number for 2010 would be below its revised forecast of 39,000, which was itself well down on its original estimate of 53,000.

It credited the lower than expected repossession levels to a combination of record low interest rates, increased lender forbearance and the support available from the Government and debt advice groups.

But the CML warned that with the economic outlook remaining uncertain, and a recent 40% cut in the rate at which SMI is paid to qualifying homeowners, it was important that support for borrowers who ran into difficulties was maintained during 2011 and beyond.

There was a slight improvement in the number of people who had fallen behind with their mortgage during the third quarter, with 176,100 people in arrears of 2.5% or more of their outstanding debt, down from 178,200 at the end of June.

Citizens Advice said it was starting to see a slowdown in the number of people who contacted it for help with mortgage and secured loan arrears.

But the group said it was "very concerned" about the changes to SMI, under which the interest rate used to calculate the level of payments homeowners receive towards their mortgage has been cut from 6% to the average mortgage rate as measured by the Bank of England, which is currently 3.6%.

The charity said it had already been contacted by homeowners who received the benefit who were worried about how they would make up the shortfall.

Campbell Robb, chief executive of housing charity Shelter, said: "At Shelter we have seen a 10% increase in calls to our homeowner helpline from SMI claimants who won't be able to keep up their mortgage payments now their support has been reduced.

"Alongside this, research released by Shelter today shows one in six homeowners are constantly struggling to pay their mortgage, a 78% increase in a year.

"With so many worried homeowners getting in touch with us following cuts to SMI and many more struggling daily, we are extremely concerned that thousands of people are being pushed into a dangerous spiral of debt and, ultimately, homelessness."

There are also concerns that the pre-action protocol, which was introduced in November 2008 and states that courts can only grant a repossession order if all other measures to keep someone in their home have failed, may simply be delaying a spike in repossession levels.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "There is the possibility that in a number of cases, the mortgage pre-action protocol is just delaying people losing their homes.

"Indeed, a significant number of homeowners are still at risk, particularly if economic activity slows markedly as tighter fiscal policy bites.

"Furthermore, any rise in interest rates would be liable to send a significant number of financially stretched people over the edge."

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