Page last updated at 11:38 GMT, Monday, 22 June 2009 12:38 UK

Repossession risk 'overestimated'

Houses in Newcastle, England
The number of homes being repossessed has risen

The Council of Mortgage Lenders has cut its forecast for the number of homes expected to be repossessed in 2009.

The lenders' group predicted that 65,000 homes would be repossessed this year, 10,000 fewer than the estimate it made in December.

The figure would still mark a sharp rise from the 40,000 homes repossessed in 2008.

The change comes as a scheme offering last-gasp free advice in courts about repossessions in England is extended.

Market 'subdued'

While changing its prediction, the CML said it was still too early to suggest that a "robust recovery" in the housing market had started.

It has still not offered any predictions for house prices for the year but, with lending still tight, it said housing activity would "remain subdued" for some time yet.

Its latest figures revealed an annual rise in UK repossessions of 50% in the first three months of the year.

We expect that further job losses and disruption to incomes will cause the number falling behind with their mortgage payments to rise
Council of Mortgage Lenders

With a growing number of people losing their jobs, the CML predicted that the number of people getting into significant arrears on their mortgage repayments would almost double compared with last year.

It said 360,000 mortgages would be in arrears of more than 2.5% of their outstanding balance by the end of the year, up from 182,600 at the end of 2008, although this forecast has been cut by 15%.

The key factor in the CML lowering its forecasts was continued low interest rates. With the Bank rate having dropped from 5% at the start of October to 0.5% now, many homeowners' mortgage bills have become cheaper.

Those who have lost jobs or bonuses could still be struggling to pay, but - unlike the early 1990s - those arrears have been building up relatively slowly.

This has offered some breathing space for homeowners and their lenders to come to agreements if the loss of income is only temporary.

"Nevertheless, we expect that further job losses and disruption to incomes will cause the number falling behind with their mortgage payments to rise over the course of 2009 - but at a slower pace than we had previously anticipated," the group said.

The CML estimates that 425,000 borrowers will be more than three months in arrears on their home loans by the end of 2009.


Separate figures published on 22 June by the Financial Services Authority (FSA) suggested that repossessions hit 14,825 in the first three months of the year, up 62% compared with the same quarter a year ago.

However, helped by lower interest rates, the number of new arrears cases fell by 12% compared with the previous quarter to 60,000.

Figures also showed that lending to people only able to offer a small deposit has shrunk.

The FSA's review of lending techniques has led to four specialist mortgage lenders being investigated for potential breaches of responsible lending rules.

It found that some specialist lenders were too quick to take court action against those in arrears, and were too focused on retrieving arrears without taking borrower's circumstances into account.

"It is unacceptable that some firms are applying fees unfairly and pushing customers towards repossession without considering alternatives," said Lesley Titcomb, of the FSA.

Extended scheme

To assist those at risk, the government said a scheme offering free advice in court for people attending repossession hearings was being extended to all parts of England.

Graph showing repossessions over last 15 months

It is doubling funding for the programme - which also provides guidance for tenants being evicted - to £1.5m.

The extra money mean advisers will be placed in every court in England.

The system is primarily aimed at people who are often unaware of the extent of their housing difficulties or who believe nothing can be done to keep them in their homes.

"It is real backstop help for those closest to the point of losing their home," said Housing Minister John Healey.

"All is not lost, even in court. In four out of five cases, the court desk advisers stop immediate repossession or eviction."

Multiple schemes

The scheme is one of a number in place aimed at helping those at risk of losing their homes through repossession.

These include a plan to allow people to defer mortgage interest payments after a sudden drop in income, and a court protocol to ensure repossession is the last resort.

Only two households in England have so far been given help in the first four months of a £285m mortgage rescue scheme, in which not-for-profit housing associations buy homes from people struggling to pay their mortgage and then allows them to continue living there by paying "affordable rent".

Without offering an endorsement of the direct effect of government schemes, the CML said that the plans meant that more people were getting in touch with their lenders and getting help as a result.

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