Residential repossessions in the UK falling, says CML
The number of residential property mortgage possessions in the second quarter of 2012 declined, according to the latest data released by the Council of Mortgage Lenders.
At 8,500, the number of possessions in the three months to June was the lowest since the final quarter of 2010. The decline in the second quarter, from a total of 9,600 possessions in the first three months of 2012, was in line with a seasonal pattern we have seen in each of the last three years.
The number of mortgages in arrears remained broadly flat in the second quarter. At the end of June, the number of loans with arrears of 2.5% or more of the outstanding balance stood at 157,400, fractionally lower than the total of 157,800 at the end of the first quarter.
Levels of arrears in lower and middle bands were slightly lower than in the preceding three months but there was a small increase from 28,000 to 28,300 in those mortgages with the highest levels arrears, of more than 10% of the balance.
The data show the number of possessions totalled 18,100 in the first six months of 2012, implying that possessions so far are on a lower trajectory than our forecast of 45,000 for the year as a whole. But the Bank of England forecast for growth reminds us of the pressures that may disturb the current pattern of stability.
‘The figures show that lenders, borrowers and debt advisers are working together to get through the current period of economic difficulty and keep mortgage possessions in check,’ said CML's director general Paul Smee.
‘Generally, when borrowers prioritise their mortgage commitments, lenders can provide help appropriate to their individual circumstances. But success in managing temporary payment problems depends on everyone working together, and it is essential for anyone worried about their mortgage to talk to their lender as soon as possible,’ he added.
According to Mark Blackwell, managing director of mortgage data specialists xit2, there is a real contradiction between increasing long term arrears and falling repossessions. ‘Lenders have been tolerant of borrowers who are really struggling. Their generous policies have stopped the growing block of borrowers in serious arrears becoming repossession cases. It has created a logjam of arrears cases that is gradually swelling. But lenders can’t go on being as forbearing, so expect repossessions to increase once they decide enough is enough,’ he explained.
‘Aside from this danger block of borrowers in arrears of 10% or more, there may be more strength in consumer finances than we imagined. Despite having their monthly budgets and savings ransacked by inflation, borrowers have done a good job of tightening their belts and making ends meet,’ he explained.
‘To manage arrears cases effectively, they need better data about borrower circumstances to make the best decision about how to support them. Often we see lenders don’t have enough data, or good enough access to data, to be able to do that. This leads to inappropriate forbearance packages being applied to borrowers, which can make things worse in the long run,’ he added.
Richard Sexton, director of e.surv chartered surveyors, believes that effectively banks are acting as a ‘life support machine’ for a big block of borrowers in long term arrears. ‘That’s why long term arrears have increased yet repossessions have fallen. To banks’ credit they’ve done everything they can to keep people in their homes, but now the economy is slipping downhill they’ll be forced to switch those life support machines off,’ he said.
‘We’ll soon reach a tipping point where the market will be hit by a glut of repossessions once decide they can no longer afford to sustain all of these 28,000 struggling borrowers,’ he added.
He also pointed out that the M62 corridor, Lancashire and parts of East London have seen the highest number of repossessions since the financial crisis. ‘A prominent north south divide has emerged, which threatens to open up further now the economy is contracting. With local economies in the north declining faster than in the south, proportionally more northern borrowers have struggled to keep up with their mortgage repayments, which means banks will be forced to repossess even more homes in northern regions,’ said Sexton.
Brian Murphy, head of lending at leading broker Mortgage Advice Bureau, believes that the latest figures are encouraging and are still following a seasonal pattern which is an indication of stability.
‘However, they are masked to some degree by lenders’ forbearance measures. Lenders are now prepared to work much more closely with borrowers to restructure loans where necessary and make repossessions truly a last resort.We’ve had a benign interest rate environment for some time now but the number of borrowers in arrears has remained flat. So even though people are generally keeping afloat it is a concern they aren’t managing to pay down their arrears,’ he added.